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A Complicated Chronology

By Gary Adams
NCC Economist

Ever since Brazil filed an injury complaint against U.S. cotton and export credit programs under the World Trade Organization (WTO), the United States and Brazil have been engaged in a protracted arbitration that may not end for several more years.

When did the U.S.-Brazil WTO dispute begin?

In 2002, Brazil claimed injury from low world cotton market prices and requested consultations in the WTO. Their claims covered all parts of the U.S. upland cotton program and the export credit programs for several commodities. In 2003, Brazil formally requested a dispute settlement panel, which presided over the dispute before issuing a ruling in September 2004.

What was the reaction to the original panel ruling in this case?

Following an appeal by the United States, the ruling triggered a number of policy responses. First, USDA proposed the elimination of the Step 2 and certain export credit guarantee programs. A special NCC task force developed recommendations, including work to delay Step 2 elimination until Aug. 1, 2006. Ultimately, Congress and the Administration passed a reconciliation bill eliminating Step 2 as of that date.

A Compliance Panel proceeding was initiated by Brazil in August 2006, and in October 2007, the Com-pliance Panel found the United States had not fully complied with the original panel’s ruling. Following an unsuccessful appeal by the United States, Brazil notified the WTO that it would move forward with an arbitration proceeding against the United States. This year’s key events were the arbitration proceedings and the Arbitration Panel’s report – which authorized cotton retaliation of $147 million and another $147 million for export credit programs. The retaliation level associated with export credit programs can vary based on the value of trade under the program.

How did the NCC respond to the decision?

First, we were pleased that the award fell well short of the $2.7 billion requested by Brazil. However, the NCC believes that the panel has overstated the impacts of U.S. programs due to the time period used in the analysis. The Arbitration Panel based the retaliation award on data for the 2005 marketing year. It should be noted that the Panel provided analysis for each of the years 1999-2005, and the price impact in 2005 was the second largest over the seven-year period. We also were pleased that the initial ruling did not authorize cross-retaliation. The Arbitration Panel has established a threshold level that must be achieved by the sum of the two individual awards before Brazil is authorized to cross-retaliate in intellectual property rights and services.

Going forward, the NCC continues to update Congressional staff on the case, as well as following up with USDA and the U.S. Trade Representative’s office. We believe that a new compliance panel is needed in order to fully evaluate the policy and market changes that have occurred since 2005.

Gary Adams is vice president of Economics & Policy Analysis for the National Cotton Council of America. He and other NCC leaders contribute columns on this Cotton Farming page.

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