Brazil’s Challenge of the US Cotton Program

Cotton Program Challenge Amount of available information is limited by rules of confidentiality Brazil has not publicly released their submissions Most US submissions (or exec summaries) are available at www.ustr.gov/enforcement/briefs.shtml 38 documents of almost 1,000 pages Just a fraction of the pages given to the Panel

Brazil claims US has violated the “Peace Clause” First case requiring a Panel to define the peace clause Level of support may not exceed that provided in 1992 marketing year The US cotton program should be shielded from most of the challenges if it has not violated peace clause What is meant by “level of support”? Is it spending or is it a policy parameter?

Is green really green? As part of the peace clause debate, Brazil argues that PFC and direct payments are not really green box and should be included in the dispute What is Green Box? Domestic support policies that are not subject to reduction commitments under the Agreement on Agriculture. These policies are assumed to have minimal effects on production and trade.

What is “Serious Prejudice”? Brazil argues that the presence of US programs (marketing loan, decoupled payments, crop insurance, Step 2, GSM, etc) have significantly depressed world prices and given the US an “unfair” market share What is significant? 1%, 2%, 10%? The US argues that we must look at prices in individual markets; there’s no price-undercutting.

Possible Policy Implication Would the U.S. and E.U. and other developed economies be less likely a subject of future WTO challenges by using quotas and tariff instruments instead of more transparent payment programs? Will the “blue box” type policy now appear more attractive?

Major US stakeholder view “We’ve been working with the WTO for 10 to 15 years now, and it’s a pipedream to believe that countries can come together in one big world court, hold hands and sing Cum Ba Yah.”

Official Responses "While this is a disappointing development, it does not change the provisions of current law." Sen. Thad Cochran "We will be defending U.S. agricultural interests in every forum we need to, and have no intention of unilaterally taking steps to disarm when it comes to this." White House Press Secretary Scott McClellan "The United States abides by the WTO rules and is, and has been, in accord with its rules on agriculture." Reps. Bob Goodlatte and Charlie Stenholm "You can be 100 percent sure we're going to appeal this [ruling] and press this all the way." U.S. Trade Representative Robert Zoellick

US points out that … the cotton program 1992 to 1995 from 1996 to 2002 fully coupled to production and planting with higher loan rates and target prices from 1996 to 2002 moved to decoupled support, reduced loan rates, lower target prices

Possible Adverse Rulings What if Step 2 is found to be prohibited subsidies? Members of US Agricultural Policy Advisory Committee were directly told in Geneva in 1993 that Step 2 was not classified as an export subsidy but was an “amber box” program.

Possible Adverse Rulings What if GSM is found to be prohibited subsidies? The US Congress was told in the statement of administrative action accompanying the WTO legislation that the Export Credit Guarantee Program is among the programs exempt from reduction commitments.

Final Thoughts on Brazil This decision will profoundly affect the Doha round of negotiations. In economic parlance – the transactions cost of creating any new agricultural agreement just increased significantly.

Producers Cooperatives Crushers Ginners Merchants Warehouses Manufacturers