The World Trade Organization (WTO) Arbitration Panel’s decision just released Aug. 31 on the U.S.-Brazil long running trade dispute wasn’t as much as Brazil originally had requested in damage.
Nevertheless, National Cotton Council (NCC) leaders still are dismayed that it doesn’t look at the current-day farm program, and focuses on the one year of 2005.
The Arbitration Panel authorized $147 million in retaliation authority for the cotton program, and another $147 million in retaliation for the Export Credit Guarantee program - far less than the $2.7 billion in authority Brazil had requested.
At this point - anyway - cross-retaliation is not authorized. It also provided no award with respect to the Step 2 cotton program.
But if cross retaliation were approved, Brazil could - in lieu of imposing higher tariffs on U.S. imports - choose to violate intellectual property rights of U.S. companies that operate in Brazil, such as seed or pharmaceutical companies.
Most of the aspects of the case are based on data from 1999 to 2005. But since Brazil sought the compliance panel in 2005, Brazil bases its complaints solely on that year - and thus, the damages.
“It doesn’t consider any U.S. policy changes in the 2008 Farm Bill,” laments Jay Hardwick, NCC chairman. “The U.S. cotton program and export credit guarantee programs have changed considerably since 2005, with U.S. cotton production down 45% (this year) and the export credit program operating at no net cost. Today’s programs cannot possibly be determined to be causing injury in the world market.”
Indeed, NCC President Mark Lange says the Council plans to contact the U.S. Trade Representative (USTR) office, and ask the USTR to covey those facts to the WTO.
What’s next? The Aug. 31 arbitration report now must be adopted by the Dispute Settlement Body (DSB) before Brazil actually can act on the decision. The next scheduled meeting of the DSB is Sept. 25, 2009. The United States cannot block the decision’s adoption. Brazil will file a formal request for DSB adoption of the report. In the meantime, Lange says the U.S. could seek the formation of another Compliance Panel, or could start an entirely new WTO Panel process to prove the cotton industry already has complied with the original decision. (But retaliation still would remain in place during any new proceedings).
There’s even the possibility the U.S. could make additional changes to the Export Credit Guarantee program and Cotton program - but Brazil would have to agree any proposed changes were sufficient.
If anything, Lange says WTO should be focusing on China and India, and not the U.S. regarding trade subsidies.
“It is time for this ruling (Brazil dispute) to be updated so the WTO can start focusing on the increasing subsidization of cotton by China and India,” Lange says.
Lange adds that at the same time the U.S. has decreased cotton production 45%, “Brazil, China, and India (cotton) production has increased more than 20%. The increased cotton production in Brazil, China, and India has ensured that world cotton prices could not rebound.”
The U.S. share of world cotton production has declined to 12% of total world cotton production - an 8 percentage point decline since 2005, and the lowest share since 1983.
Trade between the United States and Brazil in all sorts of products is big business.
In 2008, the United States exports to Brazil were $32.3 billion. Meanwhile, the U.S. took $30 billion worth of imports from Brazil.
So it’s possible any cross-retaliation by Brazil could hurt more than cotton products.
The U.S. has argued that cross-retaliation is a remedy of last report, and should be used only if tariff-based retaliation fails to provide an adequate end to the dispute.