BRAZIL: WTO COTTON VICTORY AGAINST US REAFFIRMED; PRESSURES EU ON SUGAR

The WTO Appellate Body has upheld all major findings of an earlier WTO panel that ruled that US cotton subsidies were in violation of WTO rules on agriculture and subsidies (see BRIDGES Weekly, 15 September 2004).

In its 3 March report, the Appellate Body confirmed that certain US payments to farmers, such as 'product flexibility contracts' (PFC) and 'direct payments' (DP) amounted to trade-distorting domestic support. Furthermore, it said that since they were related to the type of production undertaken, they could therefore not be categorised as permissible 'decoupled payments.'

The Appellate Body further agreed with the panel that the 'export credit guarantees' and 'step 2 marketing payments' offered to US cotton producers were prohibited export subsidies. The 'step 2' programme pays US cotton producers the difference between the domestic cotton price and the world market price to ensure that their cotton can be sold profitably in foreign markets.

Moreover, the Appellate Body upheld the panel's finding that the US export and domestic subsidies challenged by Brazil did not qualify for exemption from WTO challenges under the so- called 'peace clause' under which countries had agreed to refrain from challenging each other's agricultural subsidies. The US had appealed virtually all of the panel's findings including the crucial ones described above.

Brazil, Africa, civil society groups urge US to comply immediately

Responding to the ruling, US Trade Representative spokesman Richard Mills said the US would "study the report carefully and work closely with Congress and our farm community on our next steps." Mr. Mills also reiterated the US' longstanding position that the Bush administration was considering all options, and that negotiation, not litigation, was the most effective way to address the issue of subsidies in the WTO. Following the release of the panel report in September 2004, Brazilian officials had noted that neither the cotton case nor Brazil's challenge against the EC sugar regime had been initiated with the aim of impacting the WTO negotiations. However, Brazilian WTO Ambassador Luiz Felipe de Seixas Correa was reported to have commented that without these cases, the EC and US "would never change their policies'' (see BRIDGES Weekly, 15 September 2004).

In a 6 March statement, West African cotton producing countries Benin, Burkina Faso, Chad and Mali welcomed the ruling and urged the US to implement the decision in time for the WTO's Hong Kong Ministerial Conference in December 2005. Speaking to the press, Samuel Amehou, Benin's ambassador to the WTO, pointed out that the ruling "confirms that these subsidies are not fair and must be phased out in a very, very short time." The four countries reiterated their position that the ruling "confirmed the validity" of their repeated calls for the total elimination of cotton subsidies within the context of the Doha Round negotiations. On this point, Amehou emphasised that "two years after the submission of our sectoral initiative on cotton, it is now time to move from the stage of declarations and clarifications and finally move to concrete actions."

International charity Oxfam, which has repeatedly called for the US to abolish its subsidies because of their injurious effects on poor farmers in Africa, has expressed concern over statements by US government officials that say that no reforms may be needed to comply with the cotton ruling. Gawain Kripke, spokesperson for Oxfam's 'Make Trade Fair' campaign in Washington cautioned that "if the US stalls reform, it will cost poor Africans farmers the chance to trade their way out of poverty and perpetuate an unfair system of rules rigged for the rich." Oxfam also expressed concern that failure by the US to implement this decision could stall the WTO Doha Round agriculture negotiations. Within the WTO agriculture talks, a special sub-committee has been established to deal with the issue of cotton (see BRIDGES Weekly, 23 February 2005).

The WTO panel had ordered the US to immediately withdraw the subsidies it had found to be prohibited export subsidises -- i.e., export credit guarantees and 'step 2' marketing payments -- at the latest within six months of the date of adoption of the panel report or by 1 July 2005. Under WTO rules, the cotton ruling must formally be adopted by the WTO's Dispute Settlement Body (DSB) by the beginning of April. The US will subsequently have 30 days to announce its intentions to comply with the ruling, although it need not reveal the timeframe for doing so. The implementation deadline will be fixed through negotiations between Brazil and the US or, failing that, through WTO arbitration. The arbitration proceedings must normally be completed within 90 days of the DSB's adoption of the ruling.

Sugar appeal: Brazil requests Appellate Body to give EU 3 months to comply

In a related development, in a 7-8 March statement conveyed to the WTO Appellate Body hearing on the EU's appeal in the sugar case, Brazil requested the Appellate Body to give the EU no more than three months to eliminate its export subsidies for sugar should it uphold an 8 September panel ruling which found EU sugar subsidies to be above allowed limits.

Brazil has asked the Appellate Body to find that the EU's sugar subsidies are prohibited under the Agreement on Subsidies and Countervailing Measures (SCM Agreement), in which case the offending subsidies will have to be withdrawn "without delay," as in the cotton dispute (see BRIDGES Weekly, 2 February 2005).

ICTSD reporting; "Brazil Seeks 3-Month Deadline For EU Compliance With Sugar Ruling," WTO REPORTER, 9 March 2005; "African Nations Urge U.S. to Implement WTO Cotton Ruling by December Ministerial," WTO REPORTER, 8 March 2005; "US must act 'quickly' on cotton," BBC, 4 March 2005; "Oxfam Concerned U.S. Delaying Cotton Reform; U.S. Response to WTO Ruling Indicates Stalling, Poor Farmers Suffer Consequences," US NEWS WIRE, 4 March 2005.