Framework Agreement Delays Brazilian Retaliation
On June 17, 2010, United States and Brazilian governments concluded a Framework Agreement with respect to the WTO dispute involving the export credit guarantee programs and certain provisions of the upland cotton program. The full text of the Framework is available at www.ustr.gov. Provided the terms of the agreement are honored, Brazil will delay retaliation against U.S. products during the development of the next farm bill and has indicated that a mutually agreed outcome in the next farm bill would provide a long-term settlement of the dispute.
Prior to the Framework Agreement, Brazil specified 102 products scheduled for increased tariffs as a result of the failure of the U.S. to comply with decisions of the WTO Dispute Settlement Body. The increased tariffs would have gone into effect on April 7, 2010, but were postponed while details of the Framework Agreement were being finalized.
Brazil also published a list of 21 items under consideration for cross-retaliation through the suspension of patent and intellectual property rights. If the value of sanctions resulting from the combination of GSM and cotton as determined by a formula contained in the WTO decision exceed a certain level, Brazil would be entitled to ignore certain intellectual property rules. The list subject to cross-retaliation includes agricultural chemicals and biotechnology products, veterinary medicines, software, books, music and films.
Framework Agreement Details U.S. Commitments
The United States committed to:
1) Modify the operation of the GSM-102 Export Credit Guarantee Program to make it even more risk-based. The Framework Agreement provides benchmarks for changes to U.S. export credit guarantee programs that would affect all participating U.S. commodities.
2) Contribute $147.3 million per year to the Brazilian Cotton Institute, a non-profit association that provides technical assistance and capacity building for Brazil's cotton industry. The contributions will be made until the next farm bill is enacted with modifications to the U.S. cotton program or a mutually agreed solution is reached, whichever is sooner. The Framework Agreement also includes procedures to ensure transparency and auditing of the fund's expenditures. In addition, the U.S. insists that no funds be used to make payments to Brazilian farmers.
Framework Agreement Targets Changes in New Farm Bill
The Framework Agreement calls for an annual limit on trade-distorting cotton subsidies that would be "significantly lower" than the average for the marketing years '99-05 (the years covered by the WTO dispute). Furthermore, the actual level of the limit and the extent to which support counts against the limit would depend on the types of trade-distorting domestic support provided. Finally, Green Box, or non-trade-distorting, support does not count toward the limit.
The Framework calls for quarterly meetings between the two countries to discuss progress in the development of the next farm bill. As long as the Framework is in place, Brazil agreed not to impose trade sanctions in the form of prohibitively high tariffs on specific U.S. exports. However, Brazil reserved its rights to terminate the Framework Agreement at any time with a 21-day notice.