Brazil Authorized to Impose $294.7 Million in Tariffs Against U.S. Goods in Cotton Dispute

September 1, 2009

The World Trade Organization (WTO) announced Monday that Brazil would be authorized to impose sanctions against U.S. goods in the amount of $294.7 million as a result of Washington’s failure to end subsidy payments to American cotton farmers. The announcement follows a 2008 arbitration ruling that found the U.S. had failed to comply with a 2006 dispute settlement ruling in the long-standing U.S.-Brazil Cotton Dispute.

The WTO arbitrators stated that Brazil is entitled to impose counter measures at a fixed amount of $147.3 million per year plus a variable amount to be updated each year. The variable amount for 2006 is $147.4, making for a total of $294.7 million.

Brazil had requested authorization to impose up to $2.5 billion in counter-measures, including the right to use “cross-sectoral” by breaking U.S. patents, copyrights, and trademarks on pharmaceuticals and other areas sensitive to intellectual property rights. But, the WTO ruled that the monetary damages caused by the price suppression created by U.S. subsidies did not justify cross-retaliation for 2006 or 2007.

However, the arbitrators found that Brazil may impose cross-sectoral counter-measures if the amount of total counter-measures exceeds a calculated threshold for that year, which is based on a subset of Brazilian imports from the U.S. for a given year. In 2007, that threshold was $409.7 million.

After the announcement, Brazilian authorities claimed that while they cannot cross-retaliate for 2006 or 2007, so far in 2009 they are entitled to about $800 million in counter-measures, well past the threshold required to cross-retaliate.

The ability to cross-retaliate by suspending non-tariff concessions (such as suspending trademarks, copyrights, patens and market access for U.S. service providers) is viewed as an effective tool by developing countries who cannot punish the U.S. for unfair trade practices with higher tariffs without damaging their own companies.

Brazilian officials has not indicated what U.S. goods will be subject to increased tariffs as a result of Monday’s announcement.