WTO adopts cotton ruling, Brazil ponders sanctions

Fri Jun 20, 2008 11:43am EDT
By Laura MacInnis
GENEVA (Reuters) - The World Trade Organization (WTO) adopted a final ruling in a dispute over U.S. cotton subsidies on Friday, clearing the way for Brazil to seek up to $4 billion in sanctions on U.S. imports.
In a statement, Brazil said it hoped the decision in the case dating to 2002 "provides sufficient incentive for the United States to amend its legislation and ensure compliance with the rulings of the (WTO's Dispute Settlement Body)".
Without full compliance, "Brazil will pursue the established procedures in order to obtain from the (Dispute Settlement Body) authorization to take counter-measures vis-a-vis the United States", it added.
Brazil argues that U.S. subsidies to cotton farmers unfairly boost American production and depress world prices, squeezing developing-country farmers out of the market. The issue has also pitted Washington against African cotton producers in talks over the WTO's Doha round aimed at cutting worldwide farm subsidies.
Brazil had asked for sanctions against the United States in 2005 and that request went to arbitration after a challenge from Washington. That arbitration was later suspended to assess whether the United States had removed the offending measures.
An official at Brazil's WTO mission said Brazil was still considering whether to revive the claim for sanctions -- in two requests, one for $1 billion and one for $3 billion. There is no deadline for Brazil to request for that arbitration to resume.
Once arbitration resumes, the WTO arbitrator would have 60 days to set the level of compensation. The two claims may be consolidated or treated separately.
Brazil has previously made it clear that it would not impose sanctions on U.S. agricultural goods but would instead seek to "cross-retaliate" in other sectors, for instance by lifting copyright protections on U.S. films or computer games.
If granted, it would be the third time the WTO authorizes one of its 152 members to cross-retaliate, following Ecuador in 2000 in a banana dispute with the European Union, and Antigua in 2007 in an online gambling dispute with the United States.
In its submission to the Dispute Settlement Body on Friday, Washington said the WTO findings in the cotton dispute were based on outdated evidence.
"The (WTO) compliance panel and appellate body reports deal with market conditions from two to three years ago. Since then, U.S. cotton acreage has fallen precipitously, and continues to decline," it said.
"Despite the allegedly marked-insulating effects of U.S. payments, U.S. cotton acreage has declined by more than 38.5 percent in the last two years," it added. Price-linked subsidies to farmers have also fallen as cotton prices have risen.
(Editing by Elizabeth Piper)