U.S. and Brazil Reach Agreement to End WTO Cotton Dispute

Washington, D.C. – Today, U.S. Trade Representative Michael Froman and Secretary of Agriculture Tom Vilsack announced that the United States and Brazil have reached agreement to settle the longstanding Cotton dispute in the World Trade Organization (WTO). Under the terms of the agreement, Brazil will terminate the Cotton case, giving up its rights to countermeasures against U.S. trade or any further proceedings in this dispute. Brazil has also agreed not to bring new WTO actions against U.S. cotton support programs while the current U.S. Farm Bill is in force or against agricultural export credit guarantees under the GSM-102 program as long as the program is operated consistent with the agreed terms.

“I am pleased that the United States and Brazil have found a permanent resolution to the Cotton dispute,” said Ambassador Froman. “Today’s agreement brings to a close a matter which put hundreds of millions of dollars in U.S. exports at risk. The United States and Brazil look forward to building on this significant progress in our bilateral economic relationship.”

“Through this negotiated solution, the United States and Brazil can finally put this dispute behind us,” said Secretary Vilsack. “Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year. This removes that threat and ensures American cotton farmers will have effective risk management tools.”

Background

The Cotton dispute is a decade-long dispute brought by Brazil against the United States at the WTO. In 2005 and again in 2008, the WTO found that certain U.S. agriculture programs (domestic support to cotton under the marketing loan and countercyclical payment programs, and export credit guarantees under the GSM-102 program) were inconsistent with the United States’ WTO commitments. In August 2009, WTO arbitrators provided the level of countermeasures that Brazil could impose against U.S. trade.

In June 2010, the United States and Brazil signed a Framework Agreement to avert the imposition of countermeasures by Brazil against the United States that at the time would have affected approximately $800 million of U.S. trade, including U.S. intellectual property rights. The Framework provided specific interim steps and a process for quarterly discussions on the programs at issue. The United States also made monthly payments to the Brazil Cotton Institute for technical assistance and capacity building activities for the sector under a related Memorandum of Understanding (MOU). During discussions under the Framework over the past four years, Brazil and the United States worked on the elements of a settlement to the dispute, including changes to the operation of the GSM-102 program and changes to cotton domestic support programs. The Framework expired on February 7, 2014, when the 2014 Farm Bill was enacted. The Farm Bill included significant changes to U.S. cotton domestic support programs, along with changes to the GSM-102 program.

Over the last several months, the United States and Brazil have held intensified discussions to resolve the dispute. Today, the two governments have reached an agreement that provides for formal termination of the Cotton case at the WTO Dispute Settlement Body within 21 days. Brazil will also relinquish all rights to countermeasures against U.S. trade. Other terms and conditions are contained in a MOU that includes new rules governing the fees and tenor for guarantees under the GSM-102 Program, a final transfer of funds to the Brazil Cotton Institute, and limitations on new disputes against U.S. cotton domestic support programs and the GSM-102 program.

The 2014 MOU provides for additional support for the technical assistance and capacity building activities begun under the 2010 Memorandum of Understanding. The United States will make a one-time final contribution of $300 million to the Brazil Cotton Institute, or IBA. The 2014 MOU also provides for additional uses for the funds, such as research in conjunction with U.S. institutions.

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