A World Trade Organization (WTO) compliance panel has issued its decision authorizing Brazil to retaliate against the United States for failing to abide by previous WTO rulings which determined U.S. subsides to cotton illegal.

In its ruling, handed down on 31 August 2009, the WTO panel determined that Brazil could retaliate against the U.S. in the amount of US$147.4 million for the fiscal year 2006, and an annual amount for subsequent years, estimated at US$294.7 million based on 2006 data.

The ruling falls short of the US$2.68 billion in countermeasures Brazil had been seeking.

Notably, the panel granted Brazil a very limited right to seek to suspend certain obligations under the TRIPS Agreement (intellectual property) and the GATS (trade in services).

Cross-sector retaliation is only permitted in the event that the total amount of countermeasures Brazil is authorized to impose in a given year exceeds a certain threshold, pegged initially at US$409.7 million.

Brazil has threatened to suspend U.S. pharmaceutical patents as one form of retaliation.

Under WTO rules, cross-sector retaliation is only allowed when it is not “practicable or effective” for a country to retaliate in the same sector, in this case consumer goods.  Brazil had argued that “the costs and welfare-reducing effects resulting from the adoption of countermeasures exclusively in that sector would render such an alternative not practicable," and thus asked for authority to retaliate in other sectors.
   
The panel, however, determined that Brazil could retaliate within the consumer goods sector to the amount of US$409.7 million without “incurring significant costs to its economy.”  This amount, which is subject to change, is much higher than the estimated annual amount of retaliation Brazil will be entitled to (US$294.7 million).  

However, Brazil points out that the US$294.7 million is based on 2006 and 2007 data. Using the latest data, Brazil estimates that its first annual countermeasures will amount to some US$800 million, which would allow for cross-sector retaliation.

Brazil must now submit a specific request outlining its planned countermeasures in accordance to the ruling to the Dispute Settlement Body (DSB).

In recent months several prominent critics of U.S. cotton subsidies have emerged, including U.S. Chamber of Commerce Executive Vice President of Government Affairs Bruce Josten who wrote an open letter to the U.S. Congress on 30 July 2009 in which he urged the U.S. to comply with previous WTO rulings in the cotton dispute.

“The United States has no credibility calling on other countries to meet their trade obligations if we refuse to meet our own,” argued Josten.

Also in July, members of the Cotton 4 (C4), which include Benin, Burkina Faso, Chad and Mali, descended on Washington to publicize the negative impacts that the cotton subsidies are having on farmers in their countries.

Group coordinator and Burkina Faso Minister of Trade, Mamadou Sanou, complained that there had been no response from the U.S. on the issue and warned that there would not be a conclusion to the Doha Round of WTO negotiations without reform of U.S. cotton subsidies.