Bridges Trade BioRes • Volume 5 • Number 5 • 18th March 2005

WTO: BRAZIL COTTON VICTORY AGAINST US REAFFIRMED

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WTO: BRAZIL COTTON VICTORY AGAINST US REAFFIRMED

The WTO Appellate Body has upheld all major findings of an earlier WTO panel that ruled that US cotton subsidies were in violation of WTO rules on agriculture and subsidies (see BRIDGES Trade BioRes, 23 September 2004, http://www.ictsd.org/biores/04-09-23/inbrief.htm#3). Trade analysts noted that this ruling together with Brazil’s challenge against the EU’s sugar subsidies could open a Pandora’s Box of WTO challenges against developed country subsidies after the “peace clause” immunity, under which countries had agreed to refrain from challenging each other’s agricultural subsidies, expired at the end of 2004.

Appellate Body findings

In its 3 March report, the Appellate Body confirmed that certain US payments to farmers, such as ‘product flexibility contracts’ and ‘direct payments’, constituted trade-distorting domestic subsidies. Furthermore, it said that since they were related to the type of production undertaken, they could not be categorised as permissible ‘decoupled payments’. The US had argued that these payments were the type of ‘decoupled’ support that qualified as allowable “green box” subsidies under the WTO Agreement on Agriculture (AoA) as they were provided independently of farmers’ yield and unrelated to the type of crops produced.

The Appellate Body further agreed with the panel that the ‘export credit guarantees’ and ‘Step 2 marketing payments’ offered to US cotton producers were prohibited export subsidies. The ‘Step 2′ programme pays US cotton producers the difference between the domestic cotton price and the world market price to ensure that their cotton can be sold profitably in foreign markets. Moreover, the Appellate Body upheld the panel’s finding that all the above subsidies challenged by Brazil did not qualify for exemption from WTO challenges under the “peace clause” of the AoA.

Under WTO rules, the cotton ruling must formally be adopted by the WTO’s Dispute Settlement Body (DSB) by the beginning of April. The US will subsequently have 30 days to announce its intentions to comply with the ruling, although it need not reveal the timeframe for doing so. The implementation deadline will be fixed through negotiations between Brazil and the US or, failing that, through WTO arbitration.

Africa, civil society groups urge US to comply immediately

In a 6 March statement, West African cotton producing countries Benin, Burkina Faso, Chad and Mali welcomed the ruling and urged the US to implement the decision in time for the WTO’s Hong Kong Ministerial Conference in December 2005. Speaking to the press, Samuel Amehou, Benin’s Ambassador to the WTO, pointed out that the ruling “confirms that these subsidies are not fair and must be phased out in a very, very short time”. The four countries reiterated their position that the ruling “confirmed the validity” of their repeated calls for the total elimination of cotton subsidies within the context of the Doha Round negotiations (see Bridges Trade BioRes, 2 June 2003). On this point, Amehou emphasised that “two years after the submission of our sectoral initiative on cotton, it is now time to move from the stage of declarations and clarifications and finally move to concrete actions”.

International charity Oxfam, which has repeatedly called for the US to abolish its subsidies because of their injurious effects on poor farmers in Africa, has expressed concern over statements by US government officials that no reforms may be needed to comply with the cotton ruling. Gawain Kripke, spokesperson for Oxfam’s ‘Make Trade Fair’ campaign in Washington cautioned that “if the US stalls reform, it will cost poor Africans farmers the chance to trade their way out of poverty and perpetuate an unfair system of rules rigged for the rich”. Oxfam also expressed concern that failure by the US to implement this decision could stall the WTO Doha Round agriculture negotiations. Within the WTO agriculture talks, a special sub-committee has been established to deal with the issue of cotton (see BRIDGES Trade BioRes, 18 February 2005).

Background

Brazil asked for a WTO panel to be established to hear its claims in this dispute in February 2003 after consultations with the US failed. According to Brazil, subsidies paid to US cotton farmers from 1999-2000 and those authorised in a 2002 US Farm Bill, contravened WTO rules on Subsidies and Countervailing Measures and the Agreement on Agriculture (see BRIDGES Weekly, 2 October 2002, http://www.ictsd.org/weekly/02-10-02/story1.htm). 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. Brazil further claimed that the cotton subsidies were exempted from the immunity granted under the so-called “peace clause” of the AoA. Having found in favour of Brazil on all its major claims, the WTO panel had ordered the US to immediately withdraw the subsidies it had found to be prohibited export subsidises — i.e. export credit guarantees and ‘Step 2′ marketing payments — at the latest within six months of the date of adoption of the panel report or by 1 July 2005 .

ICTSD reporting; “African Nations Urge U.S. to Implement WTO Cotton Ruling by December Ministerial,” WTO REPORTER, 8 March 2005; “US must act ‘quickly’ on cotton,” BBC, 4 March 2005; “Oxfam Concerned U.S. Delaying Cotton Reform; U.S. Response to WTO Ruling Indicates Stalling, Poor Farmers Suffer Consequences,” US NEWS WIRE, 4 March 2005.