WORLD TRADE ORGANIZATION

2004 International Law Update, Volume 10, Number 9 (September)

Written By: Professor John R. Schmertz and Mike Meier

In Brazil-U.S. dispute over subsidized cotton, WTO Dispute Settlement Panel recommends that U.S. conform to Agreement on Agriculture and remove its cotton subsidies

On September 8, 2004, a Dispute Settlement Panel (DSP) of the World Trade Organization (WTO) issued its 351-page report in the matter of Brazil's complaint against U.S. subsidies on upland cotton. The U.S. support mechanisms for the cotton industry, include direct payments, export-credit guarantees, production-flexibility contract payments, crop-insurance payments, marketing loans, market loss assistance, and so-called Step 2 payments.

Brazil mainly contended that (1) U.S. domestic subsidies for cotton cause serious prejudice by depressing or suppressing world cotton prices, and (2) U.S. export credit guarantees for all commodities constitute export subsidies.

According to the press release of the U.S. Trade Representative, "the panel agreed with the United States that income support provided to U.S. cotton farmers and others that is fully decoupled from production and prices "� that is, a recipient does not have to produce cotton to get the payment and can choose to produce nothing at all "� has not suppressed or depressed world cotton prices."� The U.S. Trade Representative also interprets the Report in a way that the U.S. domestic support programs did not by themselves cause serious prejudice to Brazil's interests in the years 2003-2007.

The DSP makes two recommendations. The first is that the U.S. bring the disputed measures into conformity with the Agreement on Agriculture. The second is that the U.S. withdraw the prohibited subsidies as required by the Agreement on Subsidies and Countervailing Measures (SCM) within six months of the adoption of the Panel Report upon review or July 1, 2005 (whichever is earlier).

Citation: United States - Subsidies on Upland Cotton (WT/DS267/R) (8 September 2004); U.S. Trade Representative Press Release 09/08/2004; The Washington Times, September 9, 2004. [Panel Report is available on WTO website “www.wto.org.”]

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