Brazil Takes Aim at US Intellectual Property in Cotton Dispute

17 March 2010

Upping the ante in a long-running trade spat with the United States, Brazil announced on Monday that it intends to break US patents and intellectual property rights in retaliation against Washington's failure to put an end to its illegal cotton subsidies.

The publishing of the list of 21 proposed intellectual property sanctions follows the announcement last week of the 102 US goods that are set to be hit with retaliatory tariffs as of 7 April. Brazil estimates that its announced tariffs on goods would have a total value of US$591 million, while the IP restrictions would be worth US$238 million.

The WTO's Dispute Settlement Body ruled in 2005 that the US cotton support programme - specifically, its direct subsidies and a loan guarantee scheme - distort the global cotton market and violate world trade rules. A subsequent compliance panel ruling found that reforms that the US had introduced had failed to bring the country's cotton subsidies in line with its obligations at the WTO.

In a final ruling last year, the global trade body officially authorised Brazil to impose retaliatory sanctions of up US$829 million, including through ‘cross retaliation' - the imposition of punitive measures in a sector or under an agreement other than the sector or agreement in which the original violation occurred. If Brazil follows through with the measures proposed on Monday, it will become the first WTO member to ‘cross retaliate' against another country's intellectual property.

"We want to show the US that it doesn't matter if you are big or small, or how much money you have as a nation," Brazilian President Luiz Inácio Lula da Silva said on 10 March, according to media reports. "We all want to be respected and to be treated fairly."

The new retaliatory measures include the suspension - without compensation, and for a fixed period of time - of intellectual property rights on pharmaceuticals; chemicals and biotech products for agricultural use; and copyrights on music, books, and films and other audiovisual products. The measures would also allow Brazil to authorise ‘parallel imports' - that is, imports of products very similar to patented products - in the pharmaceutical and farm chemicals sectors. The Brazilian government would also be able to impose additional fees for the registration or renewal of patents and copyrights, and to confiscate a portion of the royalties that Brazilian branches of US firms send back to company headquarters.

The Brazilian government is now allowing 20 days of public consultations on the proposed new IP sanctions. A final list of cross retaliation measures will be announced at a later date.

The IP sanctions were not expected to be announced until later this month, but the various ministers involved in the process reportedly decided that there was no need to wait for Brazil's trade chamber, Camex - which is housed in the Ministry of Industry, Development and Trade (MDIC) - to give its final approval before kicking off the consultation process. Carlos Márcio Cozenday, director of the economic division of the Ministry of Foreign Affairs, denied that the IP sanctions were announced early because officials had failed to negotiate a solution last week during a visit from several high-level US officials, including Commerce Secretary Gary Locke.

Lytha , secretary for international trade at the MDIC, explained in an interview on the television programme "Roda Viva" that, unlike the new tariffs on US goods, the IP measures are expected to lower prices for Brazilian consumers. She acknowledged, however, that there are still concerns in some quarters that the measures could trigger shortages in Brazil, especially in certain medicines that local industry is not able to supply. But Spíndola explained that the authorisation of ‘parallel imports' of drugs from countries where the drugs' patents have already expired would offset any potential shortage. She also noted that the government's aim was to target patents that will soon expire in Brazil so as to spur local industry to adapt quickly to supply the domestic market.

Spíndola reiterated that Brazil would be willing to cancel its retaliatory measures if it could secure a sufficient compensation package from the US, coupled with a commitment from Washington to eliminate its illegal cotton subsidies in the next version of its Farm Bill, the comprehensive legislation that sets the levels and types of support for US farmers. The most recent version of the bill, which is renewed roughly every five years, was passed in 2008.

So far, however, Brazil has yet to receive a concrete offer from the United States, Spíndola said. That being the case, Brazil will continue to push ahead with its retaliatory measures.

A spokeswoman from the Office of the US Trade Representative warned on Tuesday that Brazil's move to threaten US intellectual property rights could turn investors away from Brazil.

"Some proposals raise concern regarding their potential impact on the investment climate in Brazil," Nefeterius McPherson said in an emailed statement to Bloomberg. "We will continue to work with Brazil and consult with the US Congress and stakeholders in an effort to reach a solution to the issues in this dispute without Brazil proceeding with countermeasures."

ICTSD reporting; "Brazil sanctions raise concern on investment climate, USTR says," BLOOMBERG, 16 March 2010.

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