WTO authorizes Brazil sanctions over U.S. cotton

The World Trade Organization authorized Brazil Thursday to impose trade sanctions on the United States over its support for cotton, as Brazil ratcheted up pressure on Washington over the illegal subsidies.

But Brazil is not yet ready to levy the sanctions, as it considers which U.S. products to target and analyses U.S. data on subsidies which will determine the size of retaliation.

The formal move at the WTO’s dispute settlement body (DSB) brought Brazil one step closer to retaliating against the United States, the world’s biggest cotton exporter, in the highly sensitive 9-year-old row.

The reduction of rich countries’ cotton subsidies is seen by developing countries as the litmus test of efforts to reform the world trading system in the WTO’s Doha round, with African producers in particular demanding radical change.

Brazil’s request to go ahead and impose sanctions, following an award by WTO arbitrators on August 31, responds to the U.S. failure to comply with earlier WTO rulings condemning the subsidies, which distort the world market for cotton, hurting farmers in poor countries.

But U.S. WTO diplomat Juan Millan told the dispute body that Washington did intend to comply with the rulings and so Brazil would not need to levy the sanctions.

“While the United States understands that the DSB will today be authorizing the suspension of concessions or other obligations, we do not believe that it will be necessary for Brazil to exercise that authorization,” he said in a statement.

He said imposing sanctions could hurt the economies of both the United States and Brazil.

SCALE OF RETALIATION

The arbitrators allowed Brazil, the second biggest cotton exporter, in some circumstances to “cross-retaliate” against goods other than cotton, or even in services or intellectual property such as patents on drugs.to exercise that authorization,” he said in a statement.

One source at Brazil’s WTO mission said that any retaliation would not take effect until after that consultation concluded.

Meanwhile Brazilian officials are calculating the scale of any retaliation on the basis of a formula set by arbitrators.

The arbitrators allowed Brazil to impose sanctions worth $147.3 million a year for subsidies such as marketing loans and counter-cyclical payments that the WTO had previously found hurt Brazil’s own industry.

In addition they allowed it to impose a variable amount to compensate for prohibited export credit guarantees known as GSM 102 payments, depending on the size of those payments.

For the fiscal year ended September 2006, that compensation would be $147.4 million, making total retaliation of around $300 million, but at the time of the arbitration award Brazil said it would be entitled to about $800 million in sanctions this year.

The Brazil mission source told Reuters that the United States had just provided data on the prohibited export subsidies for the fiscal year ended September 2008, but this now needed to be analyzed.