US COTTON SUBSIDIES STILL NOT WTO-COMPLIANT: INTERIM RULING

A WTO dispute panel has in a preliminary ruling found that the US has failed to reform cotton subsidy programmes enough to comply with an earlier decision, potentially opening the door to billions of dollars worth of sanctions from Brazil.

The panel issued the confidential interim report to the two parties on 27 July. The final ruling is expected in September. It is rare, though not unprecedented, for panels to reverse their findings between the preliminary and final verdicts.

A statement from the US trade representative's office in Washington confirmed that "the Panel found that the changes made by the United States were insufficient to bring the challenged measures - certain support payments under the 2002 farm bill and export credit guarantees - into conformity with US WTO obligations. We are very disappointed with these results."

Brazilian officials welcomed the decision. Roberto Azevedo, a senior trade official in Brasilia, told Reuters that Washington had not altered some of the principal support programmes that had been found to violate WTO rules. "We expect the United States to comply fully and immediately," he said. "Brazil reserves its right to retaliate."

The earlier WTO ruling at issue dates back to 2004, when a panel found that a range of US support measures for cotton growers and exporters violated Washington's WTO obligations. That decision was confirmed by the Appellate Body in 2005 (see BRIDGES Weekly, 9 March 2005).

Washington abolished the 'step 2' programme that paid US cotton mills and exporters the difference between American cotton prices and world benchmark rates, as well as some export credit schemes. However, Brazil and the US disagreed on the latter's compliance with the overall ruling, leading to the creation of the current 'compliance panel' in autumn 2006.

Brazil has indicated that it would seek not only to impose retaliatory duties on US goods, but also to 'cross-retaliate' against services providers and intellectual property such as patents and trademarks (see BRIDGES Weekly, 12 October 2005).

The US National Cotton Council described the interim ruling as "incomprehensible," arguing that cotton acreage had declined and world cotton prices were at a three-and-a-half year high.

Many developing countries, especially four West African cotton-producing states, are pursuing deep reduction to US cotton subsidies as part of the faltering Doha Round negotiations.

ICTSD reporting; "WTO largely rules against US in cotton dispute with Brazil," ASSOCIATED PRESS, 27 July 2007; "WTO Rules Against US in Cotton Dispute with Brazil," BLOOMBERG, 27 July 2007; "Brazil issue warning to US over WTO cotton ruling," REUTERS, 27 July 2007.

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RUSSIA FACES CONTINUED CHALLENGES TO WTO ACCESSION

Russia's 14-year quest for membership in the WTO continues to face roadblocks, but trade officials in Moscow are optimistic that an official accession package can be finalised in the next six months.

Russia's entry into the global trade body has been repeatedly blocked by disputes with the EU and the US over a number of issues, including intellectual property, trade in energy, and a general chill in relations following the assassination in London last year of former Russian spy Alexander Litvinenko (see BRIDGES Weekly, 29 November 2006).

The country's food health regulations, and resulting bans on some imports from Poland, Thailand, and the US, have also been a source of friction in accession negotiations. So have Moscow's agricultural subsidies, which amounted to $4 billion in 2006 (see BRIDGES Weekly, 22 November 2006).

A more recent challenge has come from neighbouring Georgia, which has demanded that Russia lift its import ban on Georgian wines and mineral water and end its unauthorised trade with Georgia's breakaway regions Abkhazia and South Ossetia (see BRIDGES Weekly, 25 October 2006).

According to WTO accession rules, any new member of the global trade body must negotiate market access agreements with all countries that request one. To date, Moscow has arrived at deals with 50 WTO Members, including both the EU and the US. Only Russia's agreement with Saudi Arabia has yet to be finalised.

Maxim Medvedkov, Moscow's lead negotiator on WTO accession, said Thursday that he hopes that Russia will be able to "complete negotiations by the end of this year."

Russia is currently the world's only major economy that does not belong to the WTO. Neighbouring Ukraine is also in talks to become a WTO Member; trade officials say that those negotiations are on track to wrap up by the end of the fall.

ICTSD reporting; "A New WTO Roadblock," RUSSIA PROFILE, 30 July 2007; "Ukraine ahead of Russia in WTO Bid," FINANCIAL TIMES, 26 July 2007; "Ukraine, Russia, and the WTO," KOMMERSANT.COM, 24 July 2007.

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TONGA BECOMES WTO'S NEWEST MEMBER

The tiny South Pacific kingdom of Tonga became the 151st member of the WTO on 27 July, following more than a decade of negotiations on its terms of entry.

The 169-island archipelago located roughly one-third of the way from New Zealand to Hawaii joined the global trade body in the hopes of resolving trade disputes with other countries and diversifying its agriculture-dependent economy.

Tonga agreed to its terms of entry into the WTO in December 2005, but delayed formal accession to give itself time to reform its tariff system. According to its accession package, Tonga will reduce all of its import tariff lines to 15 or 20 percent, and will do away with industrial subsidies schemes that are forbidden under WTO rules.

Agricultural products, primarily squash, coconuts, bananas, and vanilla beans, comprise nearly two-thirds of all Tongan exports. Roughly 70 percent of Tonga's 117,000 citizens work in the agricultural sector.

With a gross domestic product of $195 million in 2004, Tonga is the third-poorest member of the International Monetary Fund. In recent years, the country, whose economy depends on foreign aid and remittances from Tongans working abroad, has struggled with growing poverty rates and unemployment among its youth.

Fiji and New Zealand are the source of more than half of all of Tonga's imports; the country's exports go primarily to the US, Japan, and New Zealand.

Only a few of the world's major economies remain outside the WTO. Russia and Ukraine have submitted their applications and are currently negotiating entry; Iran is also currently not a member.

ICTSD reporting; "Tonga, One of World's Poorest Nations, to Be WTO's 151st Member," BLOOMBERG, 27 June 2007; "Tonga to Become WTO's 151st Member," ASSOCIATED PRESS, 27 June 2007; "Tonga to become WTO's 151st member next month," REUTERS, 27 June 2007.