Brazil Gives US a Break Before Retaliating for Cotton Subsidies

Brazil may retaliate against the United States in case the country insists on not eliminating subsidies to cotton export as was decided by the World Trade Organization (WTO).

The Brazilian Foreign Office (Itamaraty) announced yesterday that they have presented to the WTO a request for authorization to adopt “counter measures” against the USA, which had up to July 1st to end three export credit guarantee systems and the “Step 2” program, which guarantees aid to exporters and domestic users of the product.


The Brazilian request will be examined by the organization on the 15th. The United States may present objections to the request, which will take the process to an arbitration procedure.


It is estimated that the value Brazil would have the right to retaliate is US$ 2.9 billion. The counter measures may include, for example, the increase of taxation of US products.


However, what Brazil did was guarantee the right to retaliation while the country negotiates with the US in the bilateral field.


According to the Itamaraty, the Brazilian government recognizes the efforts that the US has been making in the last few days to reduce the financial aid.


On July 30, according to the Brazilian foreign office, the US government announced changes in the programs for export credit guarantee and said yesterday that they would send Congress a proposal for total elimination of the “Step 2” program and of the long term GSM 103 credit guarantee system.


“The Brazilian government recognizes that these North American measures are a positive step for the solution of this problem.


“With regard to the export credit guarantee programs, the government will analyze the changes made so as to determine whether they are enough to provide complete compliance to the recommendations of the DSB (WTO Dispute Settlement Body).


“With regard to the ‘Step 2’ program, in case the proposal sent to the United States Congress is approved, there will be compliance with the DSB determinations,” according to the Itamaraty statement.


Based on that, both governments closed an accord that forecasts the immediate suspension of the arbitration procedure once it is installed after the 15th, the Brazilian right to call for, at any moment, a panel for analysis of the measures adopted by the US, and the possibility of the Brazilian government returning to the arbitration process in case such measures are not enough.


In practice, what Brazil did was give the United States up to the end of the year to eliminate their subsidies considered illegal.


History


This is considered a new chapter in the novel that has been going on since September 2002, when Brazil requested information from the US government about the subsidies to the cotton sector.


Later, in March 2003, the Brazilian government opened a panel at the WTO so as to obtain condemnation to the subsidies. Brazil stated that the USA caused a reduction in foreign cotton prices due to their financial aid.


Brazil won the process in the trial and appellate court. The last decision was taken by the WTO appellate body in March this year.


Apart from the subsidies that the US should eliminate up to July 1st, the WTO has given them up to September 21 to remove other benefits considered abusive.


According to the Itamaraty, in all the subsidies in question total led US$ 12.5 billion between 1999 and 2002, with the US crop in the same period having total led US$ 13.9 billion.


Brazilian farmers complained about annual losses of US$ 480 million due to the North American benefits.


ANBA – www.anba.com.br

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