The World Trade Organization has authorized Brazil to seek retaliation against the United States for it support of two U.S. commodity programs.
Under the ruling by the WTO’s dispute settlement body on Nov. 19, Brazil can impose up to $147 million annually in counter-measures related to the U.S. cotton program. The sanctions, based on 2006 data, are fixed at this amount and can be imposed annually.
Brazil may impose additional counter-measures due to the U.S. export credit guarantee program, also known as GSM-102, which will vary from year to year based on a formula established by the WTO’s arbitration panel. Based on 2006 data, Brazil is authorized to seek an additional $147 million for the GSM-102 program, which covers 11 commodities, including cotton.
Prior to the ruling, Brazil believed it would be entitled to over $650 million in retaliation for the GSM-102 program, bringing total counter-measures of more than $800 million.
The authorization on Nov. 19 formerly recognizes the WTO’s arbitration panel’s finding in August awarding Brazil authority to seek the compensation.
In September, the National Cotton Council joined 34 other agricultural organizations in a letter to the U.S. Trade Representative urging the United States to seek a new WTO compliance panel to update the ruling on the GSM-102 program.
The Council believes the WTO’s decision does not reflect changes made to the GSM-102 program since 2005 and does not appreciate the market and policy changes for U.S. cotton since 2005.
“It is astonishing to think that anyone would conclude today that U.S. cotton production is damaging Brazilian cotton interests,” said NCC Chairman Jay Hardwick of Newellton, La. “World cotton production data continue to demonstrate that the U.S. cotton program cannot be damaging Brazil's or any other country's interests. U.S. cotton production in 2008 was more than 45 percent below the 2005 level while combined production in Brazil, China and India increased more than 20 percent since 2005.
“If there is surplus cotton damaging the interests of Brazil, it certainly did not come from growers in the United States. The U.S. share of world cotton production has declined to 12 percent of total world cotton production — an eight percentage point decline since 2005 and the lowest since 1983.”
Hardwick said the Council “will continue to work with USTR, USDA and Congress to ensure that the many changes previously made to the U.S. cotton program and the GSM-102 are fully understood and considered by the WTO.”
NCC President and CEO Mark Lange said 2008 data provided by the U.S. government on the use of the GSM-102 program could potentially increase the award sought by Brazil to over $800 million, with $650 million for the GSM-102 program and $147 million for the U.S. cotton program.
Lange said that the use of the GSM-102 by the United States is substantially larger today than it was in 2005.
“The arbitration panel also specified that if the cumulative damage between the cotton program and GSM-102 exceeded a threshold, then the extent to which the threshold is exceeded could be collected through a process known as cross retaliation. That would allow Brazil to go beyond goods and perhaps consider things like denying intellectual property rights for patents on U.S. products.”
The threshold was established at $409.7 million.
“Now we just have to wait and see what Brazil says it’s going to claim at some point in the future,” Lange said.
Brazil and the United States could also resolve the complaint through bi-lateral negotiations outside of the WTO, “which is certainly possible,” Lange said.
Brazil maintains a subsidy program for its agricultural producers which provides a lower interest rate for the purchase of inputs such as seed, fertilizer and fuel for virtually all agricultural commodities.
Two years ago, Brazil introduced a program called Pepro that provides a subsidy to sales of cotton, which has run from 5 cents to 7 cents per pound over the last couple of years.
Earlier in November, Brazil published a list of 222 items being considered for additional duties, including foodstuffs, textiles and pharmaceuticals.