Brazilian Proposals on Cotton Compliance Fail to Solicit New Ideas from U.S.

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May 24, 2010

During a recent meeting in Washington, Brazilian officials delivered to their U.S. counterparts a number of proposals that, if adopted, could lead to a permanent resolution of the World Trade Organization cotton dispute. According to sources familiar with the meeting, Brazil’s proposals address both the cotton-specific subsidies and the General Sales Manager (GSM 102) program faulted in the WTO ruling by providing interim solutions and details on what it believes would eventually constitute U.S. compliance

However, according to the same sources, the U.S. officials involved in the meeting have already suggested that it will be difficult for the U.S. to deliver on these requests. In addition to the U.S. failure to provide any concrete counter-proposals on compliance, Brazilian officials were said to be disappointed with the outcome of the their first meeting since agreeing to delay retaliatory measures against U.S. goods for 60 days on April 21^st.

Although the U.S. Department of Agriculture (USDA) has already made some changes to GSM 102, Brazil remains disappointed given the administration’s leeway over the program and at this point is not ruling out the possibility that the two sides will be unable to reach a solution.

For its part, the U.S. has long maintained that compliance with the WTO’s findings will ultimately require legislative changes and that Brazil is essentially pushing the U.S. to unilaterally adopt the restrictions outlined by the draft agricultural modalities text in the pending WTO-Doha round negotiations.

Brazil concedes both points, recognizing that changes to the cotton specific subsidies, for example, will have to take place in the context of the 2012 farm bill.  In fact, it may prefer that route because although the administration has the authority to make many of the requested changes, without legislative action there is nothing barring future administrations from withdrawing such concessions.

Further postponement of Brazil’s countermeasures against U.S. goods, beyond the initial 60-day window established by the April 21^st MOU, will therefore depend on two things; (1) what kind of commitment the Obama administration can make on working toward long-term compliance with WTO’s ruling, while providing interim compensation, and (2) whether the U.S. has provided enough details to make Brazil feel that it is adequately engaging in the process.

Negotiators from both sides are scheduled to meet again next week in Brasilia. Under the current MOU, should the two sides fail to reach an agreement on how to move forward, Brazil may begin applying countermeasures on June 21, 2010.

More information on the negotiations will be posted to www.barnesrichardson.com as it becomes available.