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18/06/2010

Brazil to Further Postpone Retaliatory Sanctions Against U.S. in Cotton Dispute

The Office of the U.S. Trade Representative reports that on June 17 Brazilian ministers reached a decision in support of a framework regarding a long-running dispute over U.S. cotton subsidies. This framework, which the U.S. must sign, would again avert the imposition of retaliatory sanctions of more than $800 million this year, including more than $560 million in higher tariffs against U.S. exports that were scheduled to go into effect June 21 as well as possible countermeasures on intellectual property rights that could have taken effect later. Press reports indicate that this agreement will essentially suspend the cotton dispute until 2012, at which time Brazil will expect the U.S. Congress to include the necessary legislative fixes in the next five-year farm bill.

According to USTR, the framework would establish a limit on trade-distorting cotton subsidies and provide benchmarks for changes to certain elements of the current GSM-102 export credit guarantee program. The two sides would also agree to meet quarterly to discuss the next farm bill as it relates to these two issues. USTR notes that while the framework would not serve as a permanent solution to the cotton dispute it would provide specific interim steps and a process for continued discussions on the programs at issue with a view to reaching a solution.

The World Trade Organization ruled in August 2009 that Brazil could impose retaliatory sanctions against the U.S. in response to its failure to implement a WTO ruling against its cotton subsidy programs. The annual amount of countermeasures authorized has two parts, a fixed amount of $147.3 million for the cotton payments and an amount for the GSM-102 program that varies based on program usage (currently more than $800 million).

Earlier this year Brazil postponed these measures after the U.S. agreed to three interim steps: establishing an annual fund of $147.3 million to aid Brazilian cotton producers (which some U.S. lawmakers have opposed, making near-term modifications to the operation of the GSM-102 program, and publishing a proposed rule to recognize the Brazilian state of Santa Catarina as free of certain diseases. Once the U.S. took those steps, the sanctions were delayed for another 60 days while the two sides negotiated the framework that was announced June 17. However, Brazil’s Foreign Trade Council (CAMEX) has warned that Brazil will continue to pursue full compliance with the WTO rulings against U.S. cotton subsidies and that any partial compliance will only be accepted on a temporary basis.

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