This month, the United States agreed to pay Brazilian cotton farmers US$ 1.473 million a year; and Boeing and Airbus both claimed victory over a WTO ruling on the EU's Launch Aid subsidies. Find out why in the WTO Subsidy Dispute Round-up....

U.S. agrees to pay Brazilian cotton farmers instead of removing illegal subsidies, to stave off WTO-authorized retaliation

The United States has agreed to pay Brazilian cotton farmers US$ 147.3 million annually for "technical assistance" under a last-minute provisional deal reached to avoid trade sanctions from Brazil. The deal was reached days before Brazil planned to impose retaliatory tariffs against U.S. goods, which it had been authorized to do by the World Trade Organization (WTO) as a result of U.S. failure to abide by that body's past rulings against its cotton subsidies.

In a 5 April press release announcing the provisional agreement, the Brazilian Ministry of External Relations said the U.S. is to pay the annual sum into "a fund to finance projects which bring benefit to Brazilian cotton ... ."

As reported previously by Subsidy Watch, in a ruling handed down on 31 August 2009, a WTO panel authorized Brazil to retaliate against the U.S. to the amount of US$ 147.4 million for the fiscal year 2006, because it determined the U.S. had failed to implement previous WTO panel decisions that deemed certain of its cotton export subsidies illegal.

The panel developed a formula to calculate the annual amount of retaliation for subsequent years based on the level of use of the U.S.'s Export Credit Guarantee (GSM 102) Program, the main subsidy found to be illegal by the WTO. Using the formula, Brazil estimated it was entitled to over US$ 800 million in retaliation for 2009, which it was prepared to implement.

Before the last-minute deal, Brazil had been set to raise tariffs on a list of products it released in March that included cotton and luxury consumer items, such as cosmetics and cars. Other retaliatory measures on U.S. patents, trademarks and services were also planned.

Instead, under the provisional agreement between the two nations, which was signed 24 April, Brazil has agreed to postpone its countermeasures for at least 60 days while the sides negotiate a permanent solution.

The deal also called for the U.S. to modify the GM 102 Program, and to lift a ban on Brazilian beef and pork put in place a decade ago over concerns about foot-and-mouth disease, which Brazil has criticized as a protective measure.

U.S. cotton subsides are widely criticized for depressing world cotton prices to the detriment of small subsistence farmers, particularly in sub-Saharan Africa. A study released in April 2010 commissioned by the International Centre for Trade and Sustainable Development concluded that the United States' refusal to abide by WTO rules has lowered world cotton prices by an average of 3.5% between 1998 and 2007.

Subsidy Watch spoke to the author of the report, Mario Jales, who said that a 3.5% average price decline was a moderate one, but that the figure had reached as high as 7.1% in 2001, a significant decrease in prices.

Although Brazil has been criticized for ignoring the plight of African farmers by reaching the provisional deal with the U.S., Mr. Jales says the deal actually puts a temporary halt to the worst price-distorting subsidies. He also points out that the money Brazilian farmers will receive appears to be headed to research and development, a category of aid that is less price-distorting.

WTO panel finds some EU member Launch Aid subsidies to Airbus illegal, but not program as a whole

A WTO panel has reportedly found that some Launch Aid subsidies provided by European Union member states to the airplane manufacturer Airbus violate its subsidy rules. The panel's decision was given to both parties on 23 March and remains confidential, though its contents have been widely leaked by both sides.

According to Inside U.S. Trade, which cited sources from both sides of the dispute, the panel found that some instances of repayable Launch Aid to Airbus are actionable subsidies under the Agreement on Subsidies and Countervailing Measures (ASCM) that caused serious prejudice to U.S. rival manufacturer Boeing.

Under the ASCM, actionable subsidies that have been proven to cause harm on another party must be removed and a failure to do so entitles the harmed party to apply countervailing measures.

The panel also found that some Launch Aid subsidies for the Airbus A300 were export subsidies and therefore automatically prohibited under the ASCM.

Yet the panel did not find that the Launch Aid program as whole, which provides assistance for Airbus to develop and launch new aircraft, violates the ACSM. This means that each individual piece of Launch Aid that an EU member state provides to Airbus will have to be challenged as an illegal subsidy in the future.

As a result of the panel's nuanced decision, both sides claimed victory. Boeing called the decision "a powerful, landmark judgment and good news for aerospace workers across America who for decades have had to compete against a heavily subsidized Airbus."

Airbus claimed that "70 percent of the US claims were rejected," and that possible aid for the A350 it is currently developing was unaffected by the ruling, given "US attempts to include the A350 were specifically rejected."

In the coming months, another panel should release its findings on a similar dispute launched by the EU against aid provided by the U.S. federal and state governments to Boeing.