us brazil cotton dispute
TRANSCRIPT
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Us-Brazil CottonDispute
By
Mukul Diwaker 09020241009
Mansi Goenka 09020241011
Abhishek Hansda 09020241081
Rohan Munot - 09020241131
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Background of the case
} The United States is the worlds largest cotton exporter.During the 2001-2003 period, U.S. cotton exportsaccounted for 40% of world trade, while U.S. cottonsubsidies averaged $3 billion per year.
} In late 2002, Brazil expressed its growing concernsabout U.S. cotton subsidies by initiating a WTO disputesettlement case (DS267) against specific provisions ofthe U.S. cotton program.
} On September 8, 2004, a WTO dispute settlementpanel ruled against the United States on several keyissues
} This ruling was appealed by the United States, and onMarch 3, 2005, and WTO Appellate Body (AB) upheldthe panels ruling.
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} U.S. cotton programs with recommendations that theoffending programs either be removed or be altered so as toremove their adverse effects
} After losing its appeal, the United States responded to the ABruling by removing its Step 2 cotton program and by adjustingits export credit programs.
} Brazil argued that these changes were insufficient and onAugust 21, 2006, requested a WTO compliance panel toreview the matter.
} Brazil sought the retaliatory measures of worth $ 147 mn peryear and was granted for the same.
} On 30 April 2010, Brazil informed the DSB that it had decidedto postpone the imposition of the countermeasures notified,and that Brazil and the US will mutually reach satisfactorysolution. Accordingly, no countermeasures will enter intoforce before 21 June 2010.
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World Cotton Market (Production)
4,400
8,350
12,500
17,559
25,500
0 5,000 10,000 15,000 20,000 25,000 30,000
Brazil
Pakistan
India
United States
China
1,000 480 lb Bales
25,500 808
0
Legend:
Worlds Top Cotton Producers (2003/2004)
Source: NationMaster.com
Source: Statistical
LexisNexus
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So the theorygoes...
USG subsidizes US cottonindustry
Underpriced US
cotton lowersworld cottonprices and
increases US shareof world cotton
markets
Lower cotton prices anda decreased share ofworld cotton markets
cost the Brazilian cottonindustry millions of
dollars
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World Cotton Market (Exports)
US and Brazil Cotton Exports (1992-2003)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1992
1994
1996
1998
2000
2002
Year
1,000480lb
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.0080.00
90.00
100.00
Cents/
US Cotton Exports
Brazil Cotton Exports
World Price of Cotton
(A Index 1/, Cents/lb)
Worlds Top Cotton Exporters (2003/2004) Source: NationMaster.com
Legend:
12,000 231
0
Source: Statistical LexisNexus
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Contested U.S. agricultural support
measures Production Flexibility Contract Payments
Direct Payments
Counter-Cyclical Payments
Marketing Assistance Loans Loan Deficiency Payments
Crop Insurance Payments
Market Loss Assistance Payments
Step-2 Payments FSC/ETITax Breaks
Export Credit Guarantees
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Subsidies by US} Step 2 payments
} Part of special cotton marketing provisionsauthorized under U.S. farm programlegislation
} To keep U.S. upland cotton competitive onthe world market
} Made to both exporters and domestic millusers
} To compensate them for their purchase ofU.S. upland cotton, which tends to bepriced higher than the world market price
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} Export credit guarantee program(GSM-102, GSM-103, and SCGP)
} Underwrites credit extended by private U.S. banks toapproved foreign banks for purchases of U.S. food
and agricultural products by foreign buyers.} Different scheme, different duration
}GSM-102- 3 years
}GSM-103- 10 years
} SCGP- Short term
} Applies not just to cotton but to all recipientcommodities that benefit from U.S. commoditysupport programs
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Arguments
Brazil Argument US CounterArgument Panel Finding
Brazil claimed that USbreached provisionsunder peace clause(Article 13) of theWTOs Agreement on
Agriculture (AA)because U.S.domestic and exportsubsidies to its cottonsector are in excess ofits WTO commitments
U.S. argued that WTOmembers agreed tothe peace clauserecognizing thatagricultural subsidies
could not beeliminatedimmediately andneeded, undercertain conditions, tobe exempted fromthe Subsidies andCountervailingMeasures (SCM)Agreement and GATT1994 subsidiesdisciplines.
The panel found that U.S.domestic cotton supportmeasures during 1999-2002, averaged $3.28billion, were in excess of
WTO commitments (of$2.0 billion). U.S. domesticcotton support measureshence lose the protectionafforded by the PeaceClause
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Brazil Argument US CounterArgument
Panel Finding
U.S. Direct Payments Do
Not Qualify forExemption fromReductionCommitments asDecoupled IncomeSupport.
United States notifies
that Direct payments asgreen box where theyare not subject to anylimits.
Panel found that U.S. payments
under Direct Paymentsprograms, because of theprohibition on planting fruits,vegetables, and wild rice oncovered program acreage, donot qualify for the WTOs greenbox category of domesticspending.
The Step-2 ProgramFunctions as an ExportSubsidy in consistentwith U.S. WTOobligations for export
subsidies as specifiedunder the SCMAgreement.
US argued that Step-2payments are part of itsdomestic supportprogram & are notified tothe WTO as amber box(trade-distorting)
domestic supportpayments and not asexport subsidies thus notsubject to any limitationsplaced on exportsubsidies.
Payments to exporters werefound to be contingent uponexport performance and thusqualified as prohibited exportsubsidies in violation of WTOcommitments.
Payments to domestic userswere found to be contingenton the use of domestic overimported goods and thereforequalified as prohibited importsubstitution subsidies.
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BrazilArgument
US Counter Argument Panel Finding
U.S. Export
CreditGuaranteesFunction asExport Subsidies
U.S. trade officials argued
that the U.S. export creditguarantee programs areconsistent with WTOobligations
Panel found that export credit
guarantees functioned as exportsubsidies as the financial benefitsreturned by these programs failedto cover their long-run operatingcost.
Subsidies Have
Caused SeriousPrejudice.
U.S. argued that the
subsidies provided to U.S.cotton growers have beenwithin the allowable WTOlimits and are consistentwith U.S. WTO obligations.
U.S. domestic support measures
that are directly contingent onmarket price levels caused seriousprejudice in terms of market pricesuppression. But no other Seriousprejudice was found.
FSC-ETI Act of2000 Acts as anExport Subsidyto UplandCotton.
The United States asserted thatBrazil failed to make anyspecific case with respect tothe ETI Act of 2000 and U.S.upland cotton exports.
Brazil failed to present any newarguments or evidenceconcerning effects upon uplandcotton, declined to furtherexamine Brazils claims on this
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Applicable WTOAgreements/Provisions
} Agreement on Agriculture} Article 13: Peace Clause
} Annex 2
} Agreement on Subsidies and Countervailing Measures (SCM)
} Article 3: Prohibition} Article 6: Serious Prejudice
} Peace Clause - Article 13 (due restraint) of theAgriculture Agreement protects countries using subsidies
which comply with the agreement from being challengedunder other WTO agreements. Without this peace clause,countries would have greater freedom to take actionagainst each others subsidies, under the Subsidies andCountervailing Measures Agreement and relatedprovisions.
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The WTO Dispute SettlementPanels Findings
} Prohibited Subsidies
}
Section 2 Payments} Export Credit Guarantee
}Actionable Subsidies
} Serious prejudice
}Marketing Loan Provision
}Market Loss Payments
} US subsidies violated Peace Clause limits
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Reasoning - Prohibited Subsidies} Step 2 payments
} U.S. cotton
} Discrimination
} Unscheduled
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Export Credit Guarantee} The WTO panel found that all three export credit
programs effectively functioned as export subsidiesbecause
} long-run operating cost.
} Application to all commodities
} Thus so long as the credit guarantees act as an implicitexport subsidy, only U.S. program crops that havescheduled export subsidies are eligible for U.S. export creditguarantees.
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Reasoning - ActionableSubsidies
} Any subsidy may be challenged in the WTO ifit fulfills the WTO definition of a subsidy and is
alleged to cause adverse effects to theinterests of other WTO members
} In particular, price-contingent payments wereidentified as contributing to serious prejudice
to the interests of Brazil
} It is done by depressing prices for cotton onthe world market during the marketing years1999-2002.
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WHYW
AS TH
ER
E A CR
OSS-RETALIATION?
} Brazil argued that cotton subsidies causedworld cotton prices to decline and reduced
their export revenues.} Global cotton output - $25 to $30 billion
} United States - Subsidized $2 to $4 billionannually.
} EU - around $1 billion annually
} Issues of trade fairness and concernsregarding negative impact on developmenterupted.
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AFRICA and LDC View} In Africa more than ten million people directly depend on
cotton exports for their livelihood
} Until WTO rules are reconfigured to address the disputesettlement systems shortcomings, the smallest and poorestdeveloping countries should align their interests and form
coalitions with the more powerful developing nations.Example
} Benin, Burkina Faso, Chad, and Mali, the so-called C-4
} The C-4 brought the case of cotton subsidies to the WTO aswell .
} They entered unchartered territory - demanded directcompensation.
} Launched the Sectorial Initiative in Favour of Cotton,
} Rationale behind the C-4s decision - Even a favorable WTOruling would not have been of much help because of theirlimited trade with the United States.
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WHAT T
HEY
SH
OULDH
AVEDONE?} For the United States, not having subsidies at all or, as
a second best, phasing them out as the U.S. General
Accountability Office recommended fifteen yearsago.
} For the C-4 (and other cotton producing developing)countries, joining forces with Brazil in its disputesettlement case may have been most beneficial.
} Such opportunities may not be available,underscoring the need for a reform of the disputesettlement system that includes monetarycompensation as a remedy.
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Judgment} The Appellate Body upheld the Panel's
finding that export credit guaranteesprovided under the revised GSM 102
programme were "export subsidies}Despite having found that the Panel's
analysis of certain quantitative evidenceconcerning the financial performance of
the revised GSM 102 programme did notmeet the requirements of DSU Art. 11
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} United States acted inconsistently with AAArts. 10.1 and 8, and ASCM Art. 3.1(a) and3.2,
} Serious prejudice to the interests of Brazilwithin the meaning of ASCM Art. 5(c).
}Authorization to retaliate granted on19 November 2009
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Current Status
} Brazil suspended retaliatory measures against U.S.goods over a cotton subsidy dispute, freezing until2012
} The deal agreed between the two countries to
head off up to $829 million in World TradeOrganization-sanctioned retaliation against U.S.goods would stay in place until a new U.S. farmbill is passed.
} Brazil could retaliate at any time if the United
States did not uphold the agreement, Brazilhad no interest in retaliating.
} Brazil had been considering retaliation by liftingpatent protections, which would have hurt U.S.makers of pharmaceuticals and chemicals.
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Reference}www.wto.org
} Brazils WTO Case Against the U.S. CottonProgram Randy Schnepf Specialist inAgricultural Policy
}www.google .finance.com
} US Escapes WTO-Okayed Retaliation by
Brazil forIllegal Cotton Subsidies,Washington Post, 19 June 2010
}www.carnegeendowmwnt.org/wtocases
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ThankYou