TWN Info Service on WTO and Trade Issues (June08/07)
16 June 2008
Third World Network

Trade: AB upholds compliance panel findings in US-Brazil cotton dispute

Published in SUNS #6487 dated 3 June 2008

Geneva, 2 June (Kanaga Raja) -- The Appellate Body on Monday upheld an earlier compliance panel ruling that found that subsidies provided by the US to its cotton farmers to be illegal, with respect to its obligations under the Agreement on Agriculture and Subsidies and Countervailing Measures (SCM).

The Appellate Body recommended that the Dispute Settlement Body request the US to bring its measures - found to be inconsistent with the Agreement on Agriculture and the SCM Agreement - into conformity with its obligations under those Agreements.

The dispute was brought by Brazil against the United States on its subsidies to upland cotton.

The findings and conclusions were issued by the Appellate Body in relation to a compliance panel report under Article 21.5 of the Dispute Settlement Understanding (issued on 18 December 2007).

In its findings and conclusions, the Appellate Body

• upheld the Panel's finding that Brazil's claims relating to export credit guarantees for pig meat and poultry meat are properly within the scope of these Article 21.5 proceedings; and

• upheld the Panel's finding that Brazil's claims against marketing loan and counter-cyclical payments made by the United States after 21 September 2005 are properly within the scope of these Article 21.5 proceedings;

On the revised GSM 102 export credit guarantee programme, the Appellate Body

• found that the Panel failed to make an objective assessment of the matter, under Article 11 of the DSU, because it dismissed the import of the re-estimates data submitted by the United States on the basis of internally inconsistent reasoning. Consequently, the Appellate Body reverses the Panel's intermediate finding that "the initial subsidy estimates provide a strong indication that GSM 102 export credit guarantees are provided against premia which are inadequate to cover the long-term operating costs and losses of the GSM 102 programme";

• upheld the Panel's finding that "the GSM 102 programme is not designed to cover its long term operating costs and losses";

• upheld, albeit for reasons that differ from those of the Panel, the Panel's conclusion that "the GSM 102 export credit guarantee programme constitutes an 'export subsidy' because it is provided against premiums which are inadequate to cover its long term operating costs and losses under the terms of item (j) of the Illustrative List".

Consequently, the AB upheld the Panel's finding that GSM 102 export credit guarantees issued after 1 July 2005 are export subsidies within the meaning of Article 3.1(a) of the SCM Agreement and Article 10.1 of the Agreement on Agriculture; and

(iv) in the light of this, the Appellate Body also upheld, the Panel's findings:

• regarding export credit guarantees issued under the revised GSM 102 programme after 1 July 2005 the United States acts inconsistently with Article 10.1 of the Agreement on Agriculture by applying export subsidies in a manner which results in the circumvention of United States' export subsidy commitments with respect to certain unscheduled products and certain scheduled products, and as a result acts inconsistently with Article 8 of the Agreement on Agriculture;

• regarding export credit guarantees issued under the revised GSM 102 programme after 1 July 2005, the United States also acts inconsistently with Articles 3.1(a) and 3.2 of the SCM Agreement by providing export subsidies to unscheduled products and by providing export subsidies to scheduled products in excess of the commitments of the United States under the Agreement on Agriculture; and

• by acting inconsistently with Articles 10.1 and 8 of the Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement, the United States has failed to comply with the DSB recommendations and rulings. Specifically, the United States has failed to bring its measures into conformity with the Agreement on Agriculture and has failed "to withdraw the subsidy without delay"; and

On the question whether the effect of marketing loan and counter-cyclical payments is significant price suppression, the Appellate Body:

(i) upheld the Panel's findings that:

• the United States acts inconsistently with its obligations under Articles 5( c) and 6.3( c) of the SCM Agreement in that the effect of marketing loan and counter-cyclical payments provided to United States upland cotton producers pursuant to the FSRI Act of 2002 is significant price suppression, within the meaning of Article 6.3( c) of the SCM Agreement, in the world market for upland cotton, constituting "present" serious prejudice to the interests of Brazil within the meaning of Article 5( c) of the SCM Agreement; and

• by acting inconsistently with Articles 5( c) and 6.3( c) of the SCM Agreement, the United States has failed to comply with the DSB's recommendations and rulings; specifically, the United States failed to comply with its obligation under Article 7.8 of the SCM Agreement "to take appropriate steps to remove the adverse effects or ... withdraw the subsidy"; and

(ii) finds that the Panel did not fail to make an objective assessment of the matter before it, as required by Article 11 of the DSU, in its analysis of Brazil's claim that the effect of the marketing loan and counter-cyclical payments is significant price suppression.

The Appellate Body recommended that the DSB request the United States to bring its measures, found in this Report, and in the Panel Report as modified by this Report, to be inconsistent with the Agreement on Agriculture and the SCM Agreement, into conformity with its obligations under those Agreements. +