U.S. Agricultural Policy Response to WTO Cotton Decision

Publication Date: September 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Coverage: Brazil

Abstract:

In a dispute settlement case (DS267) brought by Brazil against certain aspects of the U.S. cotton program, a WTO Appellate Body (AB) recommended in March 2005 that the United States remove certain "prohibited subsidies" by July 21, 2005, and remove the adverse effects resulting from certain "actionable subsidies" by September 21, 2005. When the United States failed to meet these deadlines, Brazil claimed the right to retaliate against $3 billion in U.S. exports to Brazil based on the prohibited subsidies, and proposed $1 billion in retaliation based on the actionable subsidies. The United States objected to these retaliation amounts and requested WTO arbitration on the matter. However, in mid-2005 the United States and Brazil reached a procedural agreement to temporarily suspend retaliation proceedings.

On August 21, 2006, Brazil submitted a request for a WTO compliance panel to review whether the United States has fully complied with panel and AB rulings. The United States blocked the WTO's Dispute Settlement Body (DSB) from approving Brazil's request on August 31, 2006; however, Brazil is expected to make a second request (which the United States will be unable to block) at the DSB meeting set for September 28, 2006. If a compliance panel finds that the United States has not fully complied with the AB rulings, Brazil could ask the WTO arbitration panel to resume its work. Although the United States has already complied with a portion of the AB's recommendation by eliminating the Step 2 program (August 1, 2006), additional permanent modifications to U.S. farm programs may still be needed to fully comply with the WTO ruling on "actionable subsidies." This report will be updated as events warrant.