WTO Panel Issues Mixed Verdict in Cotton Case

United States successfully defends decoupled payments from "serious prejudice" claims with no immediate impact on U.S. producers. Compiled by staff

Published on: Sep 8, 2004

A World Trade Organization (WTO) panel has issued a mixed verdict in a dispute brought by Brazil challenging several types of U.S. agricultural support measures, including support for cotton farmers, U.S. Trade Representative Robert B. Zoellick says.

Zoellick assures that the United States intends to appeal aspects of the report. However, the process is lengthy, and there will be no immediate impact on US farm programs.

In the panel proceedings, the United States successfully defended U.S. decoupled income support payments - such as direct payments under the 2002 farm legislation - as not causing "serious prejudice" to Brazil's interests. Specifically, 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.

"We welcome the panel's findings that U.S. decoupled income support payments have not caused 'serious prejudice' under WTO rules. This report confirms that reforms in our 1996 farm legislation and continued in 2002 have worked and that fully decoupled payments do not cause WTO-inconsistent effects by distorting production or trade," says Zoellick.

"U.S. farmers and ranchers are among the most efficient in the world," says Agriculture Secretary Ann M. Veneman. "U.S. farm programs were designed to be fully compliant with our WTO obligations. We will strongly defend the U.S. position and work to ensure a level playing field for U.S. producers."

Many critics have claimed that even decoupled payments spur agricultural production and drive down prices. However, the panel rejected Brazil's arguments, essentially siding with the overwhelming body of agricultural economics literature showing that these payments have no more than minimal effects. The report should dispel concerns that all U.S. support payments distort production and trade.

The panel also sided with the United States in rejecting several of Brazil's other claims. For example:

  • The panel found that Brazil had failed to show that U.S. domestic support programs caused an increase in U.S. world market share for upland cotton,

  • The panel also found that certain U.S. export credit guarantees were consistent with U.S. WTO obligations,
  • Finally, and most importantly in terms of future implications of this ruling, the Panel declined to find that U.S. domestic support programs threatened to cause, or per se cause, serious prejudice to Brazil's interests from 2003-2007.

However, the panel did side with Brazil on some of its claims that some U.S. farm payments cause adverse effects to Brazil and that other U.S. measures are prohibited, including export credit guarantees for some agricultural commodities.

"We strongly disagree with some aspects of the panel report, which we will be appealing. The facts do not show that U.S. farm programs have distorted trade and caused low cotton prices. Moreover, some aspects of the panel report belong in negotiation and not litigation, namely in the Doha Development Agenda negotiations. We believe the Appellate Body will agree," Zoellick says.