UNITED STATES SUBSIDIES ON UPLAND COTTON WTDS 267

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UNITED STATES SUBSIDIES ON UPLAND COTTON
(WT/DS 267)
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INTRODUCTION TO U.S- BRAZIL COTTON CASE

• GATT
• WTO
• Provisions
• Process

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COUNTRIES INVOLVED

• Complainant Brazil
• Defendant United States
• Third Parties Argentina Australia Benin
  Canada Chad China Chinese Taipei European
  Communities India New Zealand Pakistan
  Paraguay Venezuela Japan Thailand

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THE MAIN ISSUES

• 1 ISSUE US Domestic and Export subsidies for
  Upland Cotton Producers specifically the
• Farm Security and Rural Investment Act of 2002
• Did US Farm Bills in 1999 and the subsequent farm
  bills that targeted funds to support US prices
  for domestic cotton production and exports break
  WTO agreements on Subsidies or did Article 13 of
  the GATT 1994 preclude rules on subsidies?
• 2 ISSUE Compliance
• Once WTO ruled US cotton subsidies broke WTO
  rules Brazil requested another panel to ensure
  that US had complied with the ruling.

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SPECIFIC US BILLS CONTESTED BY BRAZIL IN WT/DS267

• Step 2 payments - subsidies designed to enhance
  competitiveness of US cotton exports, by
  providing payments to buyers of US-grown cotton
  when its price exceeds a European benchmark
  price.
• Export credit guarantees - government guarantees
  for short-term export financing for cotton and
  other agricultural commodities.
• Marketing loan payments -a loan program that
  allows farmers to use cotton crops as collateral
  for a non-recourse government loan and to repay
  the loan at a lower rate when the world price for
  cotton falls below a certain threshold.
• Counter-cyclical payments - payments proportional
  to a farmer's cotton production on "base acres"
  during a past period, triggered when the market
  price for cotton falls below a target price.

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CONTEXT OF THE CASEBRAZIL POSITION

• Brazil claims the United States Farm Bill of
  1999-2000 and 2002 contravene WTO rules on
  Subsidies and Countervailing Measures and the
  Agreement on Agriculture
• Brazil argued that the US was responsible for
  driving down world cotton prices, consequently
  causing harm to Brazilian farmers while
  increasing the US share of the global cotton
  market.

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CONTEXT BRAZIL POSITION

• Brazil requests consultations with the
  Government of the United States regarding
  prohibited and actionable subsidies provided to
  US producers, users and/or exporters of upland
  cotton. - From Brazils letter of consultation
  March 10, 2002
• Articles cited in letter
• AGR 08 AGR 09.01 AGR 10.01 AGR 19 DSU 04
  DSU 04.04 GATT 1994 III.04 GATT 1994 XXII
  SCM 1994 03.01.a SCM 1994 03.01.b SCM 1994
  03.02 SCM 1994 04.01 SCM 1994 05 SCM 1994
  06.03 SCM 1994 06.03.c SCM 1994 07.01 SCM
  1994 30

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CONTEXT OF THE CASE US POSITION

• US argues that Brazil claims are warrantless
  because US subsidies are within their rights
  pursuant to Article 13 of the Agreement on
  Agriculture that exempts certain subsidies for
  nine years after GATT 1994. These exemptions in
  Article 13 insure against complaints and are
  known as peace provisions, also know as Green
  Box exemptions.
• Article 13 Agreement on Agriculture
• Peace provisions within the agreement include
  an understanding that certain actions available
  under the Subsidies Agreement will not be applied
  with respect to green box policies and domestic
  support and export subsidies maintained in
  conformity with commitments an understanding
  that due restraint will be used in the
  application of countervailing duty rights under
  the General Agreement and setting out limits in
  terms of the applicability of nullification or
  impairment actions. These peace provisions will
  apply for a period of 9 years.

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CONTEXT CONTDUS POSITION

• Initial Brief of the US on questions posed by the
  panel. June 5, 2003
• Article 13 (the peace clause) precludes the
  Panel from considering Brazils claims under
  Article XVI of the GATT 1994 and the (ASCM) since
  the US support measures at issue conform with the
  Peace Clause.

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CONTEXT CONTDUS POSITION

• Comments of the US on comments by Brazil on
  questions posed by the Panel. June 13, 2003
• the interpretation of Article 13 advanced by
  Brazil is deeply flawedBrazil fails to read the
  Peace Clause according to the customary rules of
  interpretation of public international law.Its
  interpretation would lead to an absurd result

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LEGAL BASIS FOR BRAZIL CASE

• Brazil complained that United States Violated the
  following WTO Agreements
• 1.Articles 4.1, 7.1 and 30, of ASCM
• 2.Article 19 of the AA
• 3.Article 22 of GATT 1994
• 4.Article 4 of DSU
• In short this is violation of subsidies agreements

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WTO ARTICLES INVOLVING THE CASE

• AA 3.3- No subsidies above the scheduled level
  of specified goods (scheduled goods) in article
  9 of AA
• Export Subsidy Commitments 1.  
•        The following export subsidies are subject
  to reduction commitments under this Agreement  
• the sale or disposal for export by governments
  or their agencies of non-commercial stocks of
  agricultural products at a price lower than the
  comparable price charged for the like product to
  buyers in the domestic market(AA9(b))
• AA 8- No export subsidies for unscheduled
  products
• AA 9.1-supposed to reduce the level of direct
  subsidies payment.
• AA 10-Prevention of Circumvention  of Export
  Subsidy Commitments

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Articles Contd

• ASCM Art. 3 - no subsidies based on export
  performance- In case of U.S export credit
  guarantees
• ASCM Arts 5(C)-Serious prejudice to the
  interests of another Member
• ASCM Arts 6.3 (C)- Subsidy which cause the market
  price to be suppressed causing serious prejudice
  to Brazils interest within meaning of article 5
  (C)

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TIME LINE OF THE CASE

• Consultations Request September 27, 2002
• Consultations held December 3, 2002 January
  17, 2003- Failed.
• Brazil requested Panel February 6, 2003
• March 18, 2003 Established of a panel
• Panel Report September 8, 2004 Circulation of
  the Panel Report- both countries appealed ruling
• AB report March 3, 2005- Upheld panel ruling.

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Time Line Compliance

• August 21, 2006 Brazil requested WTO compliance
  panel
• December 18, 2007- Panel- U.S did not comply
• February 2008- U.S appealed compliance panel
  ruling
• June 2008- AB upheld the panel ruling

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PANELS AND AB FINDINGS IN FAVOR OF BRAZIL

• Two U.S programs were found to operate as
  prohibited
• The two step payment and export credit guarantees
• Further more the Panel found that the
  export-subsidies aspect does not just apply to
  cotton but also other commodities that benefit.
• Panel recommended the United states remove all
  subsidies.

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PANEL AND AP FINDINGS IN FAVOR OF UNITED STATES

• Brazil has not made a prima facie case that the
  effect of marketing loan and counter-cyclical
  payments provided to US upland cotton producers
  pursuant.

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U.S RESPONSE TO PANEL AND AB RULLING

• After losing, U.S announced it intended to fully
  comply with recommendation
• In July 2005 U.S instituted a risk based export
  credit guarantee

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BRAZILS RESPONSE TO U.S COMPLIANCE

• Brazil charged the United States had neither
  take nor announced any specific initiative for
  price-contingent programs deemed to cause
  prejudicial impact to brazil trade interest
• Brazil requested to impose 1 billion
  retaliation against the united states
• The United states requested WTO arbitration of
  the level of proposed sanction

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BRAZIL REQUEST FOR COMPLIANCE PANEL

• On August 21, 2006 Brazil requested the
  establishment of WTO compliance panel to review
  weather the United States had not fully complied
  with panel and AB report
• December 18, 2007 the compliance panel released
  the final report ruling the united states had not
  fully complied

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UNITED STATES RESPONSE TO COMPLIANCE PANEL RULLING

• In February 2008 the United states appealed the
  compliance panel ruling
• In June 2008 the TWO Appellate Body upheld the
  compliance panel ruling.

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SUMMARY

• Process worked
• Constructive manner
• Conformity
• Rules, not Power

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SOURCES

• 1. http//www.ustr.gov/
• 2. http//www.wto.org/
• 3. http//www.gao.gov/
• 4. http//www.ustr.gov/assets/Trade_Agreements/Mon
  itoring_Enforcement/Dispute_Settlement/asset_uploa
  d_file243_5697.pdf
• 5.