U.S., Brazil strike deal to settle ‘cotton dispute’

WASHINGTON — United States trade representative (USTR) Ron Kirk and Secretary of Agriculture Tom Vilsack announced that the United States and Brazil have agreed upon a path toward a negotiated settlement with Brazil over the cotton dispute.

The cotton dispute is a long-running issue brought by Brazil against the United States. In 2005 and again in 2008, the World Trade Organization (WTO) found that certain U.S. agricultural subsidies are inconsistent with WTO commitments: (1) payments to cotton producers under the marketing loan and countercyclical programs; and (2) export credit guarantees under the GSM-102 Program, a USDA program used to provide guarantees for credit extended by private U.S. banks to approved foreign banks for purchases of U.S. agricultural products by foreign buyers.

On Aug. 31, 2009, WTO arbitrators issued arbitration awards in this dispute. These awards provided the level of countermeasures that Brazil could impose against U.S. trade. The annual amount of countermeasures has two parts: 1) a fixed amount of $147.3 million for the cotton payments and 2) an amount for the GSM-102 program that varies based upon program usage. Using the data that we have given Brazil (in accordance with the arbitrators’ award), the current total of authorized countermeasures is $820 million.

The arbitrators also provided that Brazil could impose cross-sectoral countermeasures (i.e. countermeasures in sectors outside of trade in goods, specifically intellectual property and services). It may impose cross-sectoral countermeasures to the extent that it applies total countermeasures in excess of a threshold. The threshold varies annually, but is currently approximately $560 million. Therefore, of the approximately $820 million in countermeasures Brazil could impose now, about $260 million of that could be cross-sectoral.

On March 8, 2010, Brazil announced a final list of products that would face higher tariffs beginning April 7, 2010. Goods on the list include autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruit and nuts and cotton. Brazil had not made a final decision on which U.S. intellectual property rights might be affected by cross-sectoral countermeasures, but it had begun a process to make this determination.

On April 1, Deputy USTR Miriam Sapiro and USDA Undersecretary for Farm and Foreign Agricultural Services Jim Miller met with Ambassador Antonio Patriota, Secretary General of Brazil’s Ministry of External Relations to discuss possible resolution of the dispute. As a result of that dialogue, the Brazil agreed not to impose any countermeasures on U.S. trade April 7. In exchange, the United States agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building. Under terms to be agreed by the United States and Brazil in the memorandum of understanding, the fund would continue until passage of the next Farm Bill or a mutually agreed solution to the cotton dispute is reached, whichever is sooner. The fund would be subject to transparency and auditing requirements.

The United States also agreed to make some near term modifications to the operation of the GSM-102 Export Credit Guarantee Program, and to engage with the Government of Brazil in technical discussions regarding further operation of the program. The United States also agreed to publish a proposed rule by April 16, 2010, to recognize the State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever and swine vesicular disease, based on World Organization for Animal Health Guidelines, and to complete a risk evaluation that is currently underway and identify appropriate risk mitigation measures to determine whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the United States.

Following implementation of these initial steps, the United States and Brazil agreed to continue engagement on these issues, with a view to agreeing on a process by June that will allow us to reach a mutually agreed solution to the cotton dispute.

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