Intellectual Property Programme • Volume 14 • Number 6 • 17th February 2010

Brazil Set to Announce List of US Goods for Sanctions, Takes First Step to Cross-Retaliate

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Brazil has announced that on 1 March it will release a substantive list of retaliatory duties to be imposed on US goods. The retaliation results from a dispute between the United States and Brazil over the subsidies that the US provides its cotton farmers.

A WTO panel ruled in August that Brazil should be allowed to impose retaliatory duties on US$830 million worth of trade with the United States. That ruling came on the heels of a 2008 Appellate Body decision that concluded that US cotton subsidies contravene WTO rules. But the subsidies remain in place, thanks in large part to the US agriculture lobby, which wields significant influence on Capitol Hill.

“What Brazil is doing is to take all the internal steps necessary to apply these sanctions,” said Brazilian Foreign Minister Celso Amorim. “We prefer a non-contentious path but we cannot bow down just because another country is stronger. The idea is not to retaliate but we need a specific policy proposal,” added Amorim.

Of the US$830 million worth of trade that Brazil can sanction, US$560 million will be detailed in the list of goods to be released in March. The other US$270 million will be applied in the form of ‘cross-retaliation measures’, which would target services as well as intellectual property rights (IPRs).

Leading US trade associations are calling on the White House to intensify efforts to reach a negotiated solution. In separate letters to the administration and Congress, dated 28 January and 4 February respectively, these groups urged engagement with the Brazilian government and for the US to “act swiftly to present alternatives” in order to avoid retaliation.

Brazil’s leading industrial sectors have also favoured a negotiated compromise and have expressed concerns that they might lose their American suppliers and be forced to import at a higher price from other nations, given that the United States is the largest source of Brazil’s imports.

Cross-retaliation, which is allowed under WTO rules, can be a powerful retaliatory tool. By restricting or suspending IPRs, a relatively small country can inflict economic damage upon a larger country without making its consumers suffer from higher prices. In a recent ICTSD publication, Professor Frederick Abbott of Florida State University College of Law addressed the multiple complex practical and legal questions raised in the context of designing and implementing a cross-retaliation programme.

On 11 February Brazil’s president, Luiz Inácio Lula da Silva, approved legislation that allows the suspension and limitation of the IP rights of citizens or companies domiciled in countries that violate WTO rules. The legislation, which effectively enables cross-retaliation, comprised the following measures: (a) suspension and limitation of IP rights; (b) alteration of the rules and procedures that secure IP protection, mainly provided by the Brazilian Patent Office and the Ministry of Agricultural for plant variety; (c) alteration of the measures to apply IP rights; (d) temporary prohibition of royalty remittances from licensing and technology transfer and (e) additional tax application to remuneration of IP owners.

However, additional administrative action is still needed before Brazil can be in a position to effectively implement the cross-retaliation.

If Brazil follows through with the duties on IP rights and services, many believe that the measures would target the economically and politically strong US pharmaceutical industry. By suspending or breaching the IP rights of pharmaceutical companies, Brazil would be able to seize royalty payments or even produce cheaper generic versions of the targeted drugs. Jose Gomes Temporao, Health Minister of Brazil, has compiled a “list of medicines” that could face retaliation. However, he cautioned that “a decision must be made, slowly, by the entire government.”

The threat of cross-retaliation is not new to international trade disputes. Cross-retaliation has been authorised twice before: once between Ecuador and the EU and again between Antigua and the United States. However, the Brazilian cotton case may be the first time that cross-retaliation will be put into action.

Brazilian officials claim that the United States seems unwilling to address Brazilian grievances at the heart of the dispute, despite public statements by US Trade Representative Ron Kirk that he is interested in avoiding Brazilian retaliation.

ICTSD reporting; “WTO Panel Allows Brazil to Cross-Retaliate on IP, Services in US Cotton Row,” ICTSD, 9 September 2009. “Brazil to Announce Trade Sanctions List Against U.S. March 1″ MARKET NEWS INTERNATIONAL, 10 February 2010. “Lula Sets Law for Brazil to Retaliate on U.S. Patents,” BLOOMBERG, 11 February 2010.