The Panel ruling in the Brazil – U.S. cotton dispute was adopted by the Dispute Settlement Body in late March of this year. The decision of the Panel touched upon many critical aspects of the Uruguay Round Agricultural Agreement and its full impact will not be known for some time.
Certain aspects of the decision that have brought on a heightened level of attention to such deliberations by the U.S. agricultural community. This degree of concern could intensify as we move further down the path of compliance and, through the arbitration procedure, discover more about the longer term impact stemming from some of the Panel’s relatively vague findings.
I think that the least discussed aspect of this case is the degree to which it undermines any particular sector’s confidence that there is a comprehensive understanding of an agreement. There are some aspects of the Panel’s decision that just do not correspond to the official U.S. interpretation of the Uruguay Round Agricultural Agreement. And it was that official interpretation that was relied upon by the U.S. Congress when it approved the Uruguay Round Agreements.
- It would certainly appear that U.S. agriculture did not fully appreciate the significance of the Peace Clause and the relationship between the Agriculture agreement and the Subsidies Code. I think U.S. agriculture and the U.S. Congress believed that as long as a country complied with the specific URAA provisions, that country would be exempt from Subsidies Code challenges. The Panel’s decision in the Brazil case has changed this view. The U.S. agriculture community now wonders why it negotiated agriculture disciplines separately if policies acceptable under the Agriculture Agreement are nonetheless subject to a challenge under the Subsidies Code.
- The Panel’s vague deliberations on the concept of serious prejudice in the Subsidies Code bring further concern. The Panel’s thoughts on serious prejudice can be distilled to: 1.) the U.S. annually accounts for about 19% of the world’s cotton production, and 2.) the U.S. has trade distorting subsidies. Therefore, the U.S. must have committed serious prejudice to Brazil’s cotton interests.
- U.S. agriculture was fully convinced that the U.S. export credit guarantee program was exempt from direct discipline under the URAA. U.S. agriculture believed that disciplines for export credit programs were to be developed later – as stated by Article 10:2 of the URAA. Otherwise, the U.S. agriculture community and the U.S. Congress would not have approved an agreement that did not do a better job of protecting this long-standing program of the United States. In fact, in its interpretative statement that accompanied the WTO legislation to Congress, the Administration told Congress that export credit guarantee programs were essentially not covered by the URAA. Thus, the U.S. did not file subsidy schedules associated with export credit guarantee programs.
- Finally, I think the United States is still concerned about the degree to which the Panel seemed to ignore trends toward more decoupled programs in the United States. The Panel’s decision that the U.S. Direct Payment program should not be classified as a green box program because of its fruit and vegetable planting provisions, while possibly technically supportable, does not seem to be reflective of the intent of the negotiators nor U.S. policy makers.
By essentially telling the U.S. that it does not matter what the U.S. interpretation of the agreement was, the Panel has ensured that any new agricultural agreement will face a more critical and suspecting U.S. agricultural community and U.S. Congress. The next agreement will not be taken at face value by agricultural groups or the Congress – requiring negotiators to bring home an agreement with very few, if any, ambiguities remaining.
As the WTO Members push forward on the Doha Round, I am sure they will again face situations where the use of language that contains some “diplomatic ambiguity” will help forge an immediate agreement and get the entire process to the next step. In that context, it is understandable that negotiators, after having worked so long to get an agreement, would be willing to use language that enables countries to take away their preferred interpretation. But as the cotton case has demonstrated to my constituents, ambiguous language will probably be interpreted by a Panel one day and that later interpretation may be detrimental.
I see it as the job of the National Cotton Council and every other agricultural organization in the United States to be diligent in our review of negotiating drafts and also to be vocal about our concerns.
U.S. Compliance with the WTO Brazil Dispute
With respect to the Brazil Panel Report, the United States is moving forward with a response. The Administration announced in early July that it would make significant changes in the U.S. export credit guarantee program in order to comply with the report. Since that time, the U.S. Department of Agriculture has put the export credit guarantee program on much more of a commercial footing. It has gone to significant lengths to develop a more risk—based approached to the export credit guarantee program and is seeking legislation to remove a statutory cap on premiums it can charge users . As you might expect, many commodity organizations in the United States are suggesting that the Department of Agriculture has gone too far in creating a more risk-based system.
The Panel, as most of you are aware, found that the Step 2 program for cotton was a prohibited export subsidy and gave the United States until July 1 to end it or fix it. While the U.S. Administration has proposed legislation to Congress that would end Step 2 upon its enactment, the National Cotton Council has openly questioned the wisdom of taking such a step in the middle of a marketing year. The Council is of the opinion that compliance measures and timeframes within agriculture must keep in mind the cyclical nature of farming and of marketing crops. Dramatic program changes should not be forced on farmers in the middle of their marketing year for their crops – neither in the United States, nor anywhere else.
Ending or revising the Step 2 programs will also have an impact on the serious prejudice component of the Brazil Panel’s decision as the Panel aggregated Step 2 impacts with other programs to support its finding of significant price suppression. The Panel also indicated that since it expected the U.S. to end the Step 2 program it could not make a finding with respect to a future threat of market disruption. In its opinion, revising or ending Step 2 would have a significant impact on the finding of serious prejudice and the overall impact of the U.S. cotton program.
As a result of its efforts to comply with the Panel ruling, the U.S. Administration is proposing an immediate end to one U.S. agricultural program and dramatic changes in another. These are significant, unprecedented actions by the U.S. Congress.
I fully expect the United States will take further steps to comply with the Brazil ruling. I can not tell you the exact timing of those steps. It will depend on the legislative process and on Congress’ schedule. What I can tell you is that the Congressional schedule is somewhat in limbo due two events – first and foremost is dealing with the aftermath of Hurricanes Katrina and Rita, and second, is task of confirming two replacements on the Supreme Court bench.
Cotton’s Role in the Multilateral Process
Turning to the current Doha round of negotiations, the U.S. cotton industry understands the Brazil WTO case has increased the attention on U.S. cotton. We are also well aware that some organizations attempt to lay the problems of the world’s cotton market at the feet of the U.S. cotton program. However, those efforts are misleading and misrepresent the forces at work in world fiber markets. Ultimately, the efforts to single out cotton in the agricultural negotiations threaten the overall Doha Round.
U.S. cotton does not and will not support being singled for an early harvest in the Doha Round. We have relayed to Congress and the Administration in clear terms that we are fully prepared to work toward an overall, beneficial agricultural agreement and cotton is prepared to make an equitable contribution toward that positive result. We will, however, oppose any agreement that singles out cotton for unfair, special treatment.
The U.S. government has offered an aggressive and comprehensive initiative in the WTO special cotton sub-committee to examine all sources of price distortion in the world cotton market including subsidies to man-made fiber manufacturers, industrial trade policies affecting the flow of apparel and textile products, currency manipulation, and loan repayment practices.
The U.S. cotton industry will work both inside and outside of the WTO to address developmental concerns of cotton-producing African countries. We have lent our knowledge and experts to this endeavor and are working with representatives of these countries, the U.S. Department of Agriculture and the U.S. Agency for International Development to bring technologies and systems to Africa that will help improve the lives of the rural population.
We are addressing those aspects of the cotton systems in these countries that will yield long-term benefits and definite improvements in their ability to market and compete in the international cotton market. Through these and other steps, U.S. cotton is contributing to the developmental side of the international equation and assisting in the goal of the cotton subcommittee – which is to ensure that progress is made on both developmental and trade policy concerns.
We will continue to support these developmental efforts, and we will continue to contribute toward a positive outcome in the Doha negotiations – an outcome that must stretch across all agricultural sectors and all trade-distorting policies while providing more liberalized trade to everyone.
