Bridges Weekly Trade News Digest • Volume 9 • Number 24 • 6th July 2005
US Announces Changes To Illegal Cotton Subsidies, Brazil Reserves Right To Retaliate
On 5 July 2005, the US Department of Agriculture (USDA) announced proposed statutory changes to its ‘Step 2′ cotton subsidy scheme as well as to export credit guarantee programmes that benefit cotton farmers. The USDA described the changes, which will be sent to Congress for approval, as a move to comply with a recent WTO ruling that US cotton subsidies were in violation of WTO rules on subsidies and agriculture in a dispute initiated by Brazil. The ruling found both the ‘Step 2′ cotton programmes — grants given to companies that purchase US-grown cotton to process or export — and the export credit guarantee programmes to be "prohibited" subsidies, and gave the US a 1 July deadline to withdraw them (see BRIDGES Weekly, 9 March 2005).
Announcing his department’s proposal, US Agriculture Secretary Mike Johanns said that "By implementing these proposed changes, we are being fully responsive to the WTO decision… This step is essential for the US to continue to be a leader in the WTO Doha negotiations."
In an earlier 30 June USDA press release, Johanns had announced changes only to the export credit guarantee programmes. This drew criticism from the International Food and Agricultural Trade Policy Council (IPC) that the "far more important Step 2 payments — which the WTO found were suppressing world cotton prices" should also be reformed. IPC Board Member and Brazil’s former Secretary of Agricultural Production and Trade, Pedro de Camargo-Neto, had referred to the absence of reform proposals for Step 2 in the 30 June announcement as "a very bad sign for the Doha negotiations."
Brazil threatens to retaliate if US fails to comply
In a related development, Brazil is said to have informed the WTO on 5 July that it would request the right to impose USD 3 billion in sanctions on US imports as a retaliatory measure against the US delay in withdrawing the prohibited subsidies. Brazil’s request is to be considered at a special meeting of the WTO’s Dispute Settlement Body on 15 July. Brazilian officials are reported to have said that they have no intention of pursuing retaliation for now. The WTO request, however, is to preserve their legal right to retaliate in light of the fact that under WTO rules Brazil could lose the right to do so if it does not act by 15 July. Paulo Mesquita, Brazil’s deputy trade negotiator to the WTO, said "we still hope the US will comply in a manner so we don’t have to carry these out."
The 5 July and 30 June USDA press releases are available on the USDA website at: http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?navtype=MA&navid=HOME
ICTSD reporting; "Cotton aid fight heats up even as U.S. bends," INTERNATIONAL HERALD TRIBUNE, 6 July 2005; "Brazil to Ask for $3 Billion in Sanctions On U.S. Imports in WTO Cotton Dispute" WTO REPORTER, 6 July 2005; "IPC Expresses Deep Disappointment Over USDA Decision on Cotton," IPC (Press Release) , 5 July 2005.