WASHINGTON, June 20, 2012 - Cotton provisions as determined by Congress in a new farm bill could trigger retaliation by Brazil over a trade dispute.

Brazil’s Chamber of Foreign Trade (CAMEX) has reportedly called for the reconstitution of a panel of experts to determine how the Brazilian government would implement retaliatory penalties over a seven-year-old cotton dispute.

In 2009, the World Trade Organization (WTO) authorized Brazil to impose trade retaliation against U.S. goods and intellectual property rights in connection to the U.S.-Brazil cotton case. In order to comply with the WTO rulings and avoid retaliation by Brazil, the United States was directed to bring its cotton-related safety net and export promotion programs in compliance with WTO rules.

Under WTO rules, Brazil can retaliate against the United States because of the latter’s failure to comply with finding of the WTO challenge of U.S. agriculture subsidies and export incentives. Brazil developed a goods retaliation list in 2010, raising tariffs on more than 100 U.S. products, including agricultural goods, automobiles and chemicals.

Nonetheless, Brazil delayed retaliation after the two countries agreed on a bilateral framework that required the United States to pay Brazil $147.3 annually to help Brazilian cotton producers.

The interim settlement also called for U.S. curtailment of General Sales Manager (GSM) 102 program funds, which the WTO deemed to be export subsidies. The settlement is set to expire Sept. 30, when the current U.S. farm bill expires.

There remains a possibility that Congress could adopt an extension of the current farm bill if it fails to adopt a new farm bill before Sept. 30. That, in turn, could terminate the settlement and launch Brazilian retaliation.

But even the adoption of a new farm bill may not resolve the dispute. A proposed 2012 Farm Bill reported by the Senate Agriculture Committee includes a new and complex Stacked Income Protection Plan (STAX) to cotton farmers as a major component of the U.S. approach to WTO compliance. An eventual Brazilian challenge in the WTO would probably include a detailed scrutiny of the STAX program, pushing procedural deadlines even further.

The technical group assembled by the Brazilian government could update the 2010 list of goods targeted for retaliation, prior to reaching the temporary settlement set to expire in September.

Under the formula developed by the WTO in 2008, Brazil is allowed up to $830 million in retaliatory duties, some $270 million of which would target services or intellectual property rights. However, the retaliatory amounts may change with new data.


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