Since 2005, Brazil has argued that the subsidies provided to U.S. cotton growers by the U.S. government were a violation of global trade rules. On Wednesday, the WTO ordered the U.S. to make a final contribution of $300 million to the Brazil Cotton Institute. In exchange, Brazil will not further proceedings in the dispute and has agreed not to pursue new WTO actions against U.S. cotton support programs while the current U.S. Farm Bill is in force.
Agriculture secretary Tom Vilsack said, “Through this negotiated solution, the United States and Brazil can finally put this dispute behind us.” He added, “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.”
In 2005 and in 2008, the WTO found that certain U.S. agriculture programs, including domestic support to cotton under the marketing loan and export credit guarantees under the GSM-102 program, were inconsistent with the country’s WTO commitments. In 2010, the U.S. and Brazil signed a Framework Agreement to avert WTO-approved countermeasures by Brazil against U.S. trade that would have affected about $800 million of U.S. trade. The U.S. also made monthly payments to the Brazil Cotton Institute for technical assistance and improve capacity building activities for the Brazil’s cotton industry under a related 2010 Memorandum of Understanding (MOU).
Discussions between the two countries continued for four years, including talks on changing the operation of the GSM-102 program and cotton domestic support programs, however the Framework expired in February 2014 when the 2014 Farm Bill was enacted. The Farm Bill included changes to GSM-102 program and cotton domestic support programs.
U.S. Trade Representative Michael Froman said, “I am pleased that the United States and Brazil have found a permanent resolution to the Cotton dispute. 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.”