Brazil Says It is Entitled to Impose Sanctions on U.S. in Cotton Dispute

Brazil has informed the World Trade Organization that by its calculations it is entitled to impose more than $800 million in annual trade sanctions against the United States for its failure to comply with a WTO dispute ruling condemning U.S. subsidies for cotton growers.

Brazil told a meeting of the WTO's Dispute Settlement Body that, based on figures supplied for the United States on cotton subsidy spending for fiscal 2008, and based on the formula approved by a WTO arbitrator for calculating the authorized level of sanctions, Brazil was entitled to impose countermeasures up to $829.3 million per year.

In addition, Brazil said that based on its calculations, it was also entitled to impose up to $268.3 million per year of sanctions in the form of suspended intellectual property rights for U.S. rights holders and suspended market access rights for U.S. services suppliers.

The figures are much higher than those suggested in the WTO arbitrators' ruling Aug. 31 which fixed the methodology for calculating the sanctions. In approving a formula for Brazil to calculate the annual amount of sanctions based on current U.S. spending for cotton subsidies, the arbitrators said Brazil was entitled to impose $294.7 million in annual sanctions on U.S. goods.

However, that figure was based on U.S. subsidy spending in fiscal 2006. Brazil's WTO ambassador Roberto Azevedo immediately warned that the figure was out of date and that the updated figure was likely to be much higher based on a recent sharp increase in U.S. cotton subsidies deemed illegal by the WTO.

Azevedo noted that export credit guarantees issued under the U.S. GSM-102 program deemed illegal by the WTO increased from $1.36 billion in 2006 to a preliminary estimate of $4.62 billion for the first 10 months of the 2009 fiscal year ending in October. That alone would have boosted Brazil's authorized level of retaliation to some $800 million a year, he said.

The figures may go even higher once Brazil has data for the 2009 fiscal year which ended in September. Brazilian officials have already said they believe U.S. spending on illegal cotton subsidies were higher in 2009 than in 2008.

U.S. trade diplomats told the DSB meeting that they took note of Brazil's calculations and would refer the matter back to Washington, according to officials attending the meeting.