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Trade Sanctions Averted in U.S.-Brazil Cotton Dispute

Friday, October 03, 2014
Sandler, Travis & Rosenberg Trade Report

The U.S. and Brazil announced this week an agreement that effectively ends a decade-long dispute on cotton subsidies and removes the threat of hundreds of millions of dollars’ worth of Brazilian trade sanctions against U.S. goods exports and intellectual property rights.

The retaliatory measures had been authorized by the World Trade Organization after the U.S. failed to comply with a WTO ruling that U.S. domestic support to cotton under the marketing loan and countercyclical payment programs, as well as export credit guarantees under the GSM-102 program, were inconsistent with the United States’ WTO commitments. The U.S. and Brazil subsequently worked out a deal under which Brazil deferred retaliation and the U.S. made monthly payments of $12.25 million to the Brazil Cotton Institute, but that agreement expired in February when the 2014 farm bill (which included some reforms to cotton subsidy rules) was enacted. Brazil then delayed potential sanctions again by asking the WTO to rule on whether the reforms made in that legislation were sufficient.

According to a press release from the Office of the U.S. Trade Representative, under this week’s agreement Brazil will terminate its WTO case, “giving up its rights to countermeasures against U.S. trade or any further proceedings in this dispute.” Brazil has also agreed not to bring new WTO actions against (a) U.S. cotton support programs until at least Sept. 30, 2018, or (b) agricultural export credit guarantees under the GSM-102 program as long as that program is operated consistent with the agreed terms, which include higher fees and shorter repayment terms. In return, the U.S. will make a final payment of $300 million to the Brazil Cotton Institute and has agreed to greater flexibility in how those funds are used.

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