TWN Info Service on WTO and Trade Issues (Apr10/04)
12 April 2010
Third World Network

US, Brazil reach agreement in cotton dispute
Published in SUNS #6899 dated 8 April 2010

Geneva, 7 Apr (Kanaga Raja) -- The United States and Brazil on Tuesday appeared to have reached an agreement (with some details still to be finalised) in the long-running dispute over US subsidies on upland cotton, staving off the imposition by Brazil of more than $820 million in countermeasures against US goods and intellectual property rights.

The announced Brazilian trade sanctions were due to take effect from 7 April.

The announcement of an accord with Brazil came from US Trade Representative Ron Kirk and Secretary of Agriculture Tom Vilsack.

The US and Brazil are to have further talks, which Washington hopes will result in an agreement by June.

Meanwhile, in some comments on 5 April (published in the Brazilian media), Brazil's Minister of External Relations, Celso Amorim, said that if negotiations up to 21 April are successful, resulting in concrete, credible and immediate steps, in the near horizon, the possibility of a broader understanding could be foreseen.

He further said that any understanding that would be below the full implementation of the determination of the WTO (on the US cotton support and subsidies) "will be by definition temporary."

According to the Brazilian Minister, this full implementation will involve complex actions both by the executive and legislative powers of the US. A set of procedures that offers adequate conditions even if temporary will be any way welcome.

[A New York Times news report of 6 April quoted the government of Brazil as saying that the preliminary agreement "may establish the basis for a future and final mutually satisfactory solution for the dispute." According to the Times report, the Brazilian government further said that it "expects the parties to reach an understanding that makes it unnecessary to adopt the retaliation measures authorized by the WTO."]

Under the agreement announced by Kirk and Vilsack, the US will be establishing a fund of some $147.3 million a year to provide technical assistance and capacity building for the cotton sector in Brazil.

The US also agreed to make some changes to its GSM-102 Export Credit Guarantee Programme, as well as to publish a proposed rule by 16 April, aimed at recognizing the Brazilian State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever, and swine vesicular disease, in connection to beef imports from Brazil.

The US and Brazil further agreed to continue their engagement on these issues, with a view to agreeing on a process by June that will enable them to reach a mutually agreed solution to the longstanding dispute.

In two separate reports on 31 August 2009 concerning arbitration proceedings in the US-Brazil upland cotton dispute, the Arbitrator ruled that Brazil may request authorization from the Dispute Settlement Body (DSB) to suspend the application to the US of concessions or other obligations totaling some $294.7 million annually.

In the first report, the Arbitrator determined that the annual level of appropriate countermeasures in relation to GSM-102 payments amounted to $147.4 million based on Fiscal Year 2006 data. In its second report, the Arbitrator determined that the annual level of countermeasures in relation to the US marketing loan and counter-cyclical payments amounted to $147.3 million.

Shortly following the granting, on 19 November 2009, by the DSB of Brazil's request for authorization to retaliate against the US, Brazil informed the DSB that, on the basis of complete data related to fiscal year 2008 and calendar year 2008 obtained from the US and other sources indicated by the Arbitrator, the total amount of countermeasures authorized to Brazil would be $829.3 million.

On 8 March, Brazil published its final list of goods originating from the US that would be subject to increased import duties. The increased tariffs were to take effect from 7 April onwards.

The list of goods - ranging from food products, fruit and nuts, wheat, cotton and household items to electric and electronic equipment and motor cars - corresponded to an amount of retaliation of $591 million.

The remaining annual amount of retaliation to which Brazil was entitled - $238 million, which adds up to the total authorized value of $829 million - was to be applied in the sectors of intellectual property rights and services.

On 15 March, the Brazilian government launched a process of public consultations over a set of retaliatory measures in the area of intellectual property rights. The measures involved amongst others the suspension of patents, copyrights and royalty payments over a range of products.

According to a joint news release dated 6 April from the Office of the US Trade Representative and the US Department of Agriculture, on 1 April, Deputy US Trade Representative Miriam Sapiro and Undersecretary for Farm and Foreign Agricultural Services Jim Miller met with Ambassador Antonio Patriota, Secretary-General of Brazil's Ministry of External Relations to discuss the possible resolution of the dispute.

As a result of that dialogue, the Brazilian government agreed not to impose any countermeasures on US trade on April 7.

In exchange, said the release, the US agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building.

It added that under terms to be agreed by the US and Brazil in the Memorandum of Understanding, the fund would continue until passage of the next Farm Bill or a mutually agreed solution to the cotton dispute is reached, whichever is sooner.

According to the news release, the US also agreed to make "some near term modifications" to the operation of the GSM-102 Export Credit Guarantee Programme, and to engage in technical discussions with the government of Brazil on the operation of the programme.

The news release further stated that the US also agreed to publish a proposed rule by 16 April 2010, to recognize the State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever, and swine vesicular disease, based on World Organization for Animal Health Guidelines, and to complete a risk evaluation that is currently underway and identify appropriate risk mitigation measures to determine whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the US.

Following implementation of these initial steps, said the news release, the US and the government of Brazil agreed to continue engagement on these issues, "with a view to agreeing on a process by June that will allow us to reach a mutually agreed solution to the cotton dispute."

"I am pleased that our teams have been able to make substantial progress towards the goal of a negotiated settlement which would avoid the imposition of countermeasures against US trade, including US exports and intellectual property rights. We now have a clear path forward, one that is in the best interest of both the United States and Brazil," said Ambassador Kirk in the press release.

"As a result of our discussions with Brazil, we have avoided imposition of higher tariffs against hundreds of millions of dollars in US goods exports which were scheduled to go into effect this week. This demonstrates how our two countries, working together, can solve problems. I am hopeful that this will enable us to build upon our strong relationship with Brazil, to the benefit of both of our economies."

"I am so pleased that we were able to agree on a path forward with Brazil that will avoid the imposition of countermeasures on US agricultural products and industrial goods that Brazil had announced would go into effect on Wednesday. Both the United States and Brazil will benefit by working together to resolve our dispute," said Secretary Vilsack.

"I am also pleased that our path forward respects our Farm Bill process and the role of Congress in shaping our commodity programs. I look forward to working with Congress and Brazil to crafting a long-term, mutually-agreeable solution to this dispute that meets the needs of American farmers, workers and consumers."

According to US media reports, the agreement has been welcomed by US lawmakers.

In a statement issued on 6 April, US Senate Agriculture, Nutrition and Forestry Committee Chairman Blanche Lincoln and Ranking Member Saxby Chambliss said: "We believe it is appropriate on the part of both governments to take steps to avoid the imposition of retaliatory tariffs and other countermeasures."

"Failure to do so would make it far more difficult to reach a negotiated resolution in this long-running dispute. We are encouraged that both sides have agreed upon a framework for dialogue and a process to further discussion," they added.

"Ultimately, Congress and the Senate and House Agriculture Committees in particular are responsible for crafting changes to these programs and we look forward [to] working with Ambassador Kirk and Secretary Vilsack as both sides explore modifications for consideration during the 2012 farm bill process," they further said.

Trade observers in Geneva said that until details of the terms of the US-Brazil settlement in the dispute are agreed and notified, it would not be clear what effect this would have on the other cotton producers/exporters, like the "Cotton-4" in Africa (comprising Benin, Burkina Faso, Chad and Mali), and whether this would remove one of the hurdles in the agriculture talks in the WTO's Doha Round. +