Brazil has asked the World Trade Organization (WTO) to authorize up to US$ 4 billion in sanctions against the United States in retaliation for U.S. cotton subsidies which it claims have hurt the Brazilian cotton industry.

The request came in August of this year, when Brazil asked the WTO to restart consultations over how much and what sort of sanctions it could apply in retaliation against U.S. subsidies found to be illegal by the WTO.

Brazil had originally made the request in 2005, and at that time outlined a number of target areas it was considering for retaliation. These included suspending intellectual property concessions such as U.S. trademarks and patents, as well as concessions in financial and engineering services. In late 2005, Brazil suspended its request in order to engage in ultimately unsuccessful negotiations with the U.S. as part of the Doha round.

Now that the consultations have resumed, it is not yet clear what form the sanctions would take. However, Brazil appears to be still considering suspending WTO obligations to the U.S. in the areas of intellectual property rights and services. Brazilian newspapers have suggested that the government is even debating using the opportunity to suspend American pharmaceutical patents in order to allow Brazil to produce lower-priced generic drugs.

Brazil’s latest move comes in the wake of a WTO Compliance Panel decision in June, which found that certain marketing loans and counter-cyclical payments made to U.S. cotton farmers were suppressing the world market price, causing serious prejudice to Brazil. The Compliance Panel concluded that the U.S. had failed to comply with previous WTO panel and Appellate Body rulings.

The long-running trade dispute, launched by Brazil in 2002, centers on a variety of U.S. subsidies to cotton farmers, which Brazil argues are in violation of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) and other WTO rules.

The SCM Agreement divides subsidies into three categories: prohibited, actionable, and non-specific. (An additional category, non-actionable subsidies, which included certain types of aid for research, regional-development aid and assistance with environmental compliance, no longer exists.) Export subsidies and subsidies dependant on the use of domestic over imported products (import substitution subsidies) deemed to be specific, and are prohibited.

Actionable subsidies, which encompass all other subsidies, are allowed, unless they are proven to cause serious injury to another member’s domestic industry, nullification or impairment of the benefits other members receive under GATT 1994, or serious prejudice to the interests of another member.

In September 2004, a WTO Dispute Settlement Panel agreed in part with Brazil’s claims, finding that domestic support programs to cotton farmers in the U.S. were causing serious prejudice to Brazil’s interests by suppressing cotton prices in the world market, and thus needed to be amended or removed. Efforts by the U.S. to appeal the decision have proved unsuccessful. 

Since then, the U.S. has made some changes to its cotton subsidies, although Brazil contends the reforms do not go far enough.

More information on the U.S.-Brazil cotton dispute, including panel decisions can be found on WTO’s website at: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm