WTO Sanctions U.S. Over Cotton Subsidies

By Bradley S. Klapper
Associated Press
Tuesday, September 1, 2009

GENEVA, Aug. 31-- American goods will face an estimated $300 million in annual sanctions as a result of the United States' failure to eliminate illegal subsidies to U.S. cotton growers, the World Trade Organization ruled Monday.

The result was disappointing for Brazil, which has won a series of rulings against the United States over the past seven years. Brazil had sought to target American goods and drug patents for $2.5 billion worth of economic retaliation.

The WTO ruled that the sanctions should vary depending on U.S. payments each year. Arbitrators used 2006 as a base year for the ruling and said U.S. payments would have to increase significantly for Brazil to be allowed to punish American drug patents.

Washington had argued that the award should not exceed $30 million. "While we remain disappointed with the outcome of this dispute, we are pleased that the arbitrators awarded Brazil far below the amount of countermeasures it asked for," said Carol Guthrie, spokeswoman for U.S. Trade Representative Ron Kirk.

Guthrie said the United States was also pleased that the WTO rejected Brazil's requests for "unlimited" sanctions on U.S. patents and trademarks and for a one-time award of $350 million in penalties for a subsidy Washington has already repealed.

Brazil's ambassador to the WTO, Roberto Azevedo, said the award was significant because it is the "second largest that has ever been authorized in the WTO's history." But he said the actual sanctions may be much larger than what the 2006 base year suggests. For this year, he estimated, the formula would mean that Brazil could set $800 million worth of sanctions. Of that, he said, $340 million could be from U.S. services and intellectual property rights, such as patents and trademarks.

Monday's ruling was the fifth major decision since the Brazilian government first brought the case to the WTO in 2002, alleging that the United States retained its place as the world's second-largest cotton producer by paying out some $3 billion to American farmers each year. China is the largest exporter of cotton, while Brazil is fifth.

Congress has scrapped some export credits and in 2006 repealed the "Step-2" cotton-marketing program, which made payments to exporters and domestic mill users as compensation for buying higher-priced American cotton.

But last year, U.S. lawmakers approved a new farm bill worth nearly $300 billion that left a number of other contentious cotton programs intact.

Critics of the cotton subsidies say they drive down prices, making it impossible for small farms to compete in international markets and more difficult for poorer countries to develop their economies by selling their agricultural produce abroad.

A WTO-proposed draft released two years ago calls on the U.S. to make an 82 percent cut in trade-distorting handouts to American cotton farmers as part of the trade accord. Washington rejected the cuts but never proposed an alternative.

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