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U.S., Brazil Agree on Framework Regarding WTO Cotton Dispute

Washington, D.C. – Today Brazil’s Ministers reached a decision in support of a Framework regarding the Cotton dispute, which would avert the imposition of countermeasures of more than $800 million this year. This includes more than $560 million in countermeasures against U.S. exports which were scheduled to go into effect on Monday, June 21, 2010, as well as possible countermeasures on intellectual property rights that could have taken effect later. We are pleased with this decision, and look forward to signing the Framework soon.

The findings in the Cotton dispute concern U.S. cotton support under the marketing loan and countercyclical payment programs, and the GSM-102 Export Credit Guarantee Program. In line with these findings, the Framework has two major elements.

First, it would provide, as a basis for a discussion toward reaching a mutually agreed solution to the dispute, a limit on trade-distorting cotton subsidies. Second, the Framework would provide benchmarks for changes to certain elements of the current GSM-102 program. In the Framework, the United States and Brazil would agree to meet quarterly to discuss the successor legislation to the 2008 Farm Bill as it relates to trade-distorting cotton subsidies and the operation of GSM-102. The Framework would not serve as a permanent solution to the Cotton dispute. However, it would provide specific interim steps and a process for continued discussions on the programs at issue with a view to reaching a solution to the dispute.

“I am pleased that we have been able to negotiate a Framework regarding the WTO Cotton dispute that would avoid the imposition of countermeasures against U.S. trade, including goods and intellectual property,” said Ambassador Kirk. “While respecting the role of the United States Congress in developing the next Farm Bill, this Framework would now allow us to continue to work toward a final resolution of the Cotton dispute. I believe this Framework will go a long way in alleviating the uncertainty in our business communities and enhance the ability of the United States and Brazil to build upon our dynamic trading relationship.”

“This framework agreement provides a way forward as we work with Congress toward a new farm bill in 2012,” said Secretary of Agriculture Tom Vilsack. “Although it is not a permanent solution, I am pleased that it allows us to maintain our programs while considering adjustments and avoiding the immediate imposition of countermeasures against U.S. exports as a result of the WTO cotton decision.”

BACKGROUND

The Cotton dispute is a long-running dispute brought by Brazil against the United States. In 2005 and again in 2008, the World Trade Organization (WTO) found that certain U.S. agricultural support payments and guarantees are inconsistent with WTO commitments: (1) payments to cotton producers under the marketing loan and countercyclical programs; and (2) export credit guarantees under the GSM-102 program, a USDA program used to provide guarantees for credit extended by U.S. banks or exporters to approved foreign banks for purchases of U.S. agricultural exports.

On August 31, 2009, WTO arbitrators issued arbitration awards in this dispute. These awards provided the level of countermeasures that Brazil could impose against U.S. trade. The annual amount of countermeasures has two parts: 1) a fixed amount of $147.3 million for the cotton payments and 2) an amount for the GSM-102 program that varies based upon program usage. Using the data that we have given Brazil (in accordance with the arbitrators' award), the current total of authorized countermeasures is more than $800 million.

The arbitrators also provided that Brazil could impose cross-sectoral countermeasures (i.e. countermeasures in sectors outside of trade in goods, specifically intellectual property and services). It may impose cross-sectoral countermeasures to the extent that it applies total countermeasures in excess of a threshold. The threshold varies annually, but is currently approximately $560 million. Therefore, of the approximately $820 million in countermeasures Brazil could impose now, about $260 million of that could be cross-sectoral.

On March 8, 2010 Brazil announced a final list of products that would face higher tariffs beginning on April 7, 2010. Goods on the list include autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruit and nuts, and cotton. Brazil had not made a final decision on which U.S. intellectual property rights might be affected by cross-sectoral countermeasures, but it had begun the process to make this determination.

On April 1, Deputy USTR Miriam Sapiro and USDA Undersecretary for Farm and Foreign Agricultural Services Jim Miller met with Ambassador Antonio Patriota, Secretary General of Brazil's Ministry of External Relations to discuss possible resolution of the dispute. As a result of that dialogue, the Government of Brazil agreed not to impose any countermeasures on U.S. trade at that time. In exchange, the United States agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building to the cotton sector in Brazil, and for international cooperation related to the same sector in certain other countries. Under the Memorandum of Understanding that the United States and Brazil signed on April 20, 2010, the fund would continue until passage of the next Farm Bill or a mutually agreed solution to the Cotton dispute is reached, whichever is sooner. The fund is subject to transparency and auditing requirements.

The United States also agreed to make certain near term modifications to the operation of the GSM-102 Export Credit Guarantee Program, and to engage with the Government of Brazil in technical discussions regarding further operation of the program. In addition, the United States published a proposed rule on April 16, 2010, to recognize the State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever, and swine vesicular disease, based on World Organization for Animal Health Guidelines, and to complete a risk evaluation and identify appropriate risk mitigation measures to determine whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the United States.

The parties further agreed on April 1 that they would work to develop a Framework regarding the Cotton dispute by June 21, which would provide a path forward for a negotiated solution to the Cotton dispute and allow both countries to avoid the impact of countermeasures. Negotiators from Brazil and the United States have been engaged intensively over the past several months, and successfully concluded this Framework.

Brazil is the United States’ 10th largest trading partner with a total two-way goods trade of approximately $60 billion in 2009.