Good Example Of Essay On US-Brazil Cotton Dispute: Issues And Resolution

(Professor/Instructor)

In 2002, Brazil-one of the major exporters of cotton to the global market-challenged particular policies of the United States cotton agenda. Two years later, a conflict resolution body of the World Trade Organization (WTO) ruled that the assailed provisions of the US cotton program regarding “support payments” and assurances, inclusive of payments to cotton manufacturers within the “marketing loan and counter-cyclical” programs as well as the “export credit guarantees of the GSM-102 agenda, were found to be incompatible with agreements committed to under the ambit of the WTO (Schnepf 1).
Cotton represents 0.2 percent of Brazil’s GDP; decreasing prices in the world as well as in the Brazilian market over the last decade resulted in the country drastically reducing the areas for cotton production by 14 percent. With the decline in arable land for cotton production, the amount of cotton produced declined by the same number. The rising cultivation of cotton in emerging economies such as Brazil forms one of the major pillars for economic recovery. Cotton forms only a minor component of the economic ‘pie,’ accounting for less than 0.12 percent of their merchandise income; various models have shown that subsidy programs such as the one being practiced by the United States and other states and trade blocs, is severely deleterious to the production and export revenues for emerging and underdeveloped nations. Interventions made by governments continue to depress prices in the global market for cotton producers and farmers in underdeveloped and emerging economies (Gillson, Poulton, Balcombe, Page 55).
In the resolution of the Appellate Panel, the body castigated the compliance tribunal for not thoroughly examining the borders of the digressing economic structures that was evidenced by Brazil and the United States as well as not being extensive enough in its examination of the comparative formulas of the same. Lastly, the Appellate Body expounded that the impact of these subsidies is not the sole contributor for price suppression. For the body, there are other contributors that will affect the prices of manufactures in the market, and that a claim for manipulation can still be made even if there are other factors that can trigger price manipulation (Andersen, Taylor 4).
The initiation of the dispute in the WTO came as a result of the surging American production and trade in cotton, rapidly dropping cotton prices, and acute loss of revenues not only for Brazilian cotton farmers, but also or farmers in Africa and in other cotton manufacturing countries. The depressed prices for the commodity were being attributed, in part, to the assistance programs being implemented by the US and the WTO (Andersen, Taylor 2).
The US-Brazil trade litigation involved a diverse number of new legal and methodologies on matters of evidence within the ambit of the “subsidies disciplines” regime of the WTO with regards to a number of forms of agronomical financial assistance policies. One of the most significant issues raised in this action was the fact that these decisions were the pioneering and sole rulings given by the trade body in implementing WTO policies on “actionable” assistance resulting in “serious prejudice” to agronomical manufactures.
Under the SCM Agreement of the WTO, this is limited to the banning of a circumscribed range of export as well as domestic content subsidies, and here, it is understood that all subsidies have legal basis, if these assistance programs do not generate other forms of “serious prejudice” for other members of the trade organization. One of the major claims of Brazil was that a number of assistance programs that sustained cotton production and exports resulted in the infliction of “serious prejudice” by way of massive price manipulation in the global cotton market, a violation of the SCM Agreement’s Article 6, Section C. The initial panel reviewed Brazil’s claim that the cumulative effects of the eight subsidy programs that engaged the areas of manufacturing, utilization, and export of American cotton resulted in massive price manipulation in violation of the cited Article (Andersen, Taylor 2-3).
The 2008 Farm Act preserved a large number of “program” agricultural products that were indicative of the majority of American “non-livestock” agronomy, and includes the “price-contingent” marketing financial assistance programs and the “counter-cyclical” endowments assailed in the Cotton rulings. Moreover, the Farm Act preserved the “direct payment” and “crop insurance” financial aid practices, and was supplemented by a new assistance program. These subsidy programs have proven essential for American farmers for various commodities to offset their total production expenses.
This critical piece, combined with the significant market share of American agronomical products for export and manufacturing of goods and services, proffer that the American economy will be placed at great risk when the prices for these products fall should these products are the beneficiaries of substantial local support (Andersen, Taylor 7).
Brazil argued that the policies and regulations were in conflict with US commitments under the tenets of the WTO. Later in 2002, Zimbabwe and India asked to be included in the consultations with Brazil against the US; a few days later, Argentina and Canada also requested to be included in the consultations.
The body found that the “agricultural export credit guarantees” being implemented by the United States fell under the jurisdiction of the “export subsidy” sanctions of the body, and are classified as illegal export endowments in violation of the disciplines of the WTO. In addition, the body found that the “domestic support programs” are not safeguarded by the “Peace Clause” with regards to the cotton issue, and is resolute in finding that these programs being implemented by the United States will result in “serious prejudice” to Brazil’s trade interests by way of price elimination in the global market.
The United States signified its desire to appeal particular issues and jurisprudences established by the panel. The chair of the appeals body, on the 16th of December 2004, notified the Dispute Settlement Body (DSB) that in the context of the numerous and complicated issues that were bought up in this case, the chair stated that the report of the body would be released by the first part of 2005 (World Trade Organization 1).
The following year, the United States amended the cotton and the GSM programs to make them compliant with the resolutions of the WTO. However, Brazil again challenged the US position, arguing that the amendments of the US government with regards to its cotton and GSM policies were insufficient to be found compliant with the WTO position. The WTO ruled in favor of Brazil in 2007, and the United States has appealed the decision of the compliance tribunal in 2007 (Schnepf 1).
The Cotton issue is significant in the sense that this was the pioneering, and fruitful, challenge to the extremely trade-misinterpreting, litigable, and banned agricultural endowments within the ambit of the WTO. The ensuing legal proceedings, litigated from 2003-2009, resulted in the Cotton WTO decisions. In total, the rulings established a set of strong precedents that will be exceptionally critical for future contentions to agricultural assistance programs. With regards to the “actionable subsidy” and the banned export assistance policies, the decisions here developed a large jurisprudence body and resulting understanding of trade disputes.
The ruling, in general, evidenced the susceptibility of trade-perverting agricultural assistance programs, specifically ones applied in the United States and in the European Union. From a legal practitioner’s standpoint, the documents and the expert testimony given by Brazil in its contention against the United States offers a guide for future litigations to a number of agricultural assistance programs in the future. In a broader sense, the range of trade misrepresentations that have been founded as facts as declared in the Cotton decisions will have an effect on the Doha Round of negotiations geared to decrease or eliminate the collective number of local and agronomical export assistance programs.
Furthermore, the rulings by the WTO have fueled restructuring programs and initiatives on the US and EU domestic fronts by emphasizing the serious adverse impact of these assistance programs on underdeveloped and emerging economies that are dependent on cotton export revenues as well as income from other agricultural manufactures.
In the context of the Doha Round trade arbitrations regarding decreasing or eliminating altogether trade-altering domestic agricultural financial assistance programs and the total abrogation of export funding policies and practices, one of the crucial factors of the Cotton decision is being able to quantify the collective negative impacts on the market of the American subsidy program. To cite an instance, in appreciating the adverse impacts of the “marketing loan” and the “counter cyclical” financial assistance being practiced in the cotton sector, the panel discovered that the collective impacts of the price manipulation effects of the practice was at $2.905 billion, which by any standard, is an enormous amount. With this determination, evidencing the significant size of the impact on the sector can result in the development of “moral suasion” and lead to foment of global indignation at the effects of such trade “malfeasance,” specifically on underdeveloped and emerging economies (Andersen, Taylor, 2-5).
The effects of the countermeasures ranged by Brazil against the United States as a result of the rulings will be significantly deleterious to the American economy. In December 2009, Brazilian trade officials declared that, with the mandate of the WTO that it will implement a “trade assault” on the United States in the form of more than $820 million in American manufactures. The retaliatory policies include a static yearly amount of more than $140 million, representing the negative impacts of the American “price-contingent” assistance programs. These include proceeds from marketing loans and “counter-cyclical” payments (Schnepf 26).
Various American as well as Brazilian trade groups, among them the Brazil-United States Trade Council, the United States Chamber of Commerce, the Council of the Americas, and the American Chamber of Commerce in Brazil, among others, declared their common stand that the United States exhausts all possible measures and steps to avoid the imposition of the trade sanctions being threatened by Brazil. The resolution of the trade dispute will likely come in two phases. The first would include the commencement of administrative steps by the United States regarding several pending trade concerns with Brazil as a “goodwill” measure. The second would and must be within the framework of the 2012 Farm Act. Here, Congress must be amenable to introducing additional substantive amendments to American cotton sector financial assistance or the GSM 102 “export credit guarantee program (Schnepf 25).
Brazilian and American officials met to try and arrive at an agreement for the resolution of the trade conflict. Miriam Sapiro, the Deputy United States Trade Representative as well as United States Department of Agriculture (USDA) Undersecretary for Farm and Foreign Agricultural Services Jim Miller consulted with Ambassador Antonio Patriota, who is the Secretary General of the Ministry of Foreign Relations for Brazil, in a bid to peacefully settle the issue. After evaluating a proposal raised by the United States for an arbitrated settlement on the issue, Brazil’s Foreign Trade Council (CAMEX) adopted a resolution that suspended to a tentative April 22 deadline for the implementation of the WTO-supported retaliatory trade measures against the United States (Schnepf 26).

Works Cited

Andersen, Scott D., Taylor, Meredith A. “Brazil’s WTO challenge to US cotton subsidies: the road to effective disciplines for agricultural subsidies.” <http://www.wcl.american.edu/blr/documents/AU_BLBFall09_Anderson.pdf
Gillson, Ian, Poulton, Colin, Balcombe, Kelvin, and Page, Shiela “Understanding the impact of cotton subsidies on developing countries.” <http://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/4721.pdf
Schnepf, Randy “Brazil’s WTO case against the US cotton program.” <http://fas.org/sgp/crs/row/RL32571.pdf
World Trade Organization “United States-Subsidies on Upland Cotton.” <http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm