U.S.-Brazil cotton dispute: cross retaliation gone bad

By: Anna Carolina Lessa
Staff Editor
January 26, 2010

On August 31, 2009, after seven years of tiresome litigation, Brazil won the World Trade Organization (WTO) dispute against the United States on unfair cotton subsidies. Brazil originally raised the matter in 2002 with support from Argentina, Canada, China, the European Union, India and Japan.

A major cotton export competitor, Brazil expressed growing concerns regarding U.S. cotton “domestic support” measures, export credit guarantees, and other measures alleged to be export and domestic content subsidies. Even though the WTO dispute settlement panel ruled against the United States in 2004, it was only after a series of recourses by both countries that the WTO finally issued a decision on the argument, proving that certain aspects of the U.S. cotton subsidies were in fact damaging to farmers around the world.

Since the United States failed to comply with WTO rules within a pre-established period of time, Brazil was authorized to seek retaliation, by suspending trade concessions (“impose countermeasures”) against the United States. The total value of retaliation is based on a specific formula set by WTO Arbitrators, which will vary each year. According to 2006 fiscal year data, this amount would be equivalent to $294.7 million.

Granting the Brazilian countermeasures request opens the door to other forms of retaliation, including the suspension of the country’s commitments to owe the United States under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). This possibility has incited great apprehension from holders and manufacturers of intellectual property.

If Brazil decides to weaken international property right protection, the potential harm to innocent bystanders to the dispute is massive. Even though the possibility of Brazil exercising this option seems low, because IPR protection is linked to the 2016 Olympic Games commitments, Brazil has initially placed two cancer medicines into the preliminary retaliation list issued by the Brazilian Foreign Trade Chamber (CAMEX). This list is under current public consultation before CAMEX can make a final decision.

The possibility of Brazil enforcing the TRIPs Agreement would negatively impact the country’s international leadership role in many areas, such as climate change. Above all, Brazil would be harming its own citizens, as there is no alternative for this cancer treatment.

The government’s urge to implement to the fullest extent possible Brazil’s right to retaliate might harm its own country. In the end, Brazilian patients will be paying for an agricultural dispute.

In conclusion, Brazil’s success in its WTO dispute against the United States requires the country to strike a delicate balance. Brazil has achieved the right to retaliate, but taking advantage of that right may be contrary to the country’s own interests and will likely affect the bilateral relations with its main trading partner. Brazil could eventually decide not to act on any such authorization, but at this point that possibility seems very unlikely.

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