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Brazil Again Considering Retaliation in Cotton Dispute

Monday, October 07, 2013
Sandler, Travis & Rosenberg Trade Report

According to press reports, Brazil has resumed a process that could result in heavy trade sanctions against the U.S. These measures could include higher tariffs on U.S. exports as well as the suspension of intellectual property rights.

Since 2010 the U.S. has been paying Brazil $147 million a year in return for the suspension of retaliatory measures authorized by the World Trade Organization after the U.S. failed to comply with a WTO ruling against its cotton subsidies. However, budget woes reportedly prompted Washington to cut its monthly payment roughly in half in September and suspend it entirely beginning Oct. 1, presumably until congressional authorization of government spending is reinstated. As a result, press reports state, Brazil has reconstituted an interagency task force that is expected to report to President Dilma Rousseff by the end of November on the nature and amount of possible retaliatory measures.

The WTO has already authorized Brazil to impose sanctions in the form of both higher tariffs on goods imported from the U.S. and the suspension of U.S. intellectual property rights. The annual amount of these sanctions has two parts, a fixed amount of $147.3 million for cotton payments and an amount for the GSM-102 export assistance program that varies based on program usage. As of June 2012 the latter amount was more than $800 million, but Inside US Trade notes that “changing trade flows and other adjustments” to the GSM-102 program “may have significantly diminished the amount of retaliation” to which Brazil is entitled.

In 2010 Brazil took steps to implement the retaliatory measures, including higher tariffs against 102 specific U.S. products. Shortly before those tariffs were to have taken effect, however, the two sides reached an agreement under which Brazil postponed retaliation in return for various U.S. actions, including establishing an annual fund of $147.3 million to aid Brazilian cotton producers and reforming the GSM-102 program. This agreement acknowledged that the more substantial reforms to U.S. cotton subsidies that Brazil wants were to be taken up in the next farm bill. In summer 2012 Brazil sought to increase pressure on U.S. lawmakers by updating its list of U.S. goods that could be hit with higher tariffs as well as the total amount of U.S. exports that could be penalized. Congress subsequently failed to pass a new farm bill and instead extended the previous one through September 2013, but Brazil agreed to continue suspending retaliation during that time.

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