WORLD TRADE  
ORGANIZATION  WT/DS267/30 
21 August 2006 
 
 (06-3966) 
 Original:   English 
  
 
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Recourse to Article 21.5 of the DSU by Brazil
 
 
Request for the Establishment of a Panel  
 
 
 The following communication, dated 18 August 2006, from the delegation of Brazil to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 21.5 of the DSU.  
_______________ 
 
 1. On 21 March 2005, the Dispute Settlement Body  ("DSB") adopted the Appellate Body report 
and the Panel report
1, as modified by the Appellate Body report, in United States – Subsidies on 
Upland Cotton , WT/DS267.2   
 
A. Relevant Findings, and Recommendations and Rulings 
 
2. Brazil summarizes below the findings of the Appellate Body and the Panel, and the 
recommendations and rulings of the DSB, that are relevant to this communication.  Those findings, 
and recommendations and rulings, relate to (i) actionable subsidies and (ii) prohibited export 
subsidies.   3. The Panel and Appellate Body found, inter alia , that the price-contingent US marketing loan, 
counter-cyclical and Step 2 programs in the Farm S ecurity and Rural Investment Act ("FSRI Act") of 
2002 caused significant price suppression in the worl d market for upland cotton in violation of 
Articles 5(c) and 6.3(c) of the Agreement on Subsidies and Countervailing Measures ("SCM 
Agreement ").
3  In paragraph 8.1(g)(i) of its report, the Panel found that: 
 
"[T]he effect of the mandatory price-contingent United States subsidy measures – marketing loan programme payments, u ser marketing (Step 2) payments, MLA 
payments and CCP payments – is significant price suppression in the same world 
market within the meaning of Article 6.3(c) of the SCM Agreement  constituting 
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement ." 
                                                     
 
1 WT/DS267/AB/R ("Appellate Body Report, US – Upland Cotton "); WT/DS267/R ("Panel Report, 
US – Upland Cotton "). 
2 WT/DSB/M/186. 
3 Panel Report, US – Upland Cotton , paras. 8.1(g)(i) and 7.1416. WT/DS267/30 
Page 2  
 
  The recommendations and rulings adopted by the DSB directed the United States, under Article 7.8 of 
the SCM Agreement , to remove the adverse effects caused by  these subsidies, or to withdraw the 
subsidies, by 21 September 2005.
4   
 4. The Panel found that three export credit guarantee ("ECG") programs maintained by the 
United States to support the export of US agricu ltural products – the Gene ral Sales Manager 102 
("GSM 102"), General Sales Manager 103 ("GSM 103") and Supplier Credit Guarantee ("SCGP") 
Programs
5 – constitute export subsidie s under Article 10.1 of the Agreement on Agriculture .  The 
Panel further found that these three ECG programs are export subsidies applied in a manner that 
results in actual circumvention of US export s ubsidy commitments for rice, and other products – 
including upland cotton – for which the United St ates has not undertaken export subsidy reduction 
commitments ("unscheduled" products) and which we re supported by the ECG programs.  The Panel 
therefore concluded that these three ECG programs ar e inconsistent with Articles 10.1 and 8 of the 
Agreement on Agriculture .   
 
5. Having found that these three ECG programs c onstitute export subsidies for purposes of its 
analysis of Brazil's claims under the Agreement on Agriculture , the Panel also found that for purposes 
of Brazil's claims under Part II of the SCM Agreement , the programs are similarly prohibited subsidies 
under Articles 3.1(a) and 3.2 of the SCM Agreement .6 
 6. As a result of these findings, the Panel r ecommended that the United States bring these three 
ECG programs, with respect to upland cotton and other unscheduled supported products, and to rice, 
into conformity with the Agreement on Agriculture .
7  Pursuant to Article 4.7 of the SCM Agreement , 
the Panel additionally recommended that the Unite d States withdraw these prohibited subsidies 
without delay, and by no later than 1 July 2005.8   
 
7. The Appellate Body affirmed these recommendations.9  In addition, the Appellate Body 
reversed the Panel's finding that Brazil had failed to make a prima facie  case that the United States 
had applied ECGs in a manner that resulted in  actual circumvention of its export subsidy 
commitments with respect to pig meat and poultry meat, within the meaning of Article 10.1 of the 
Agreement on Agriculture ; however, the Appellate Body was unable to complete the analysis for this 
claim.10  
 
B. Measures Taken by the United States to Comply 
 
8. To implement the recommendations and rulings of the DSB, the United States took the following actions: 
 
 (i) On 3 February 2006, the United States Congress approved a bill that repeals the 
Step 2 subsidy program for upland cotton.
11  The bill was signed into law on 
8 February 2006,12 and took effect on 1 August 2006. 
 
                                                      
4 Panel Report, US – Upland Cotton , para. 8.3(d). 
5 See 7 U.S.C. § 5622; 7 CFR Part 1493. 
6 Panel Report, US – Upland Cotton , para. 8.1(d)(i). 
7 Panel Report, US – Upland Cotton , para. 8.3(a). 
8 Panel Report, US – Upland Cotton , para. 8.3(b). 
9 Appellate Body Report, US – Upland Cotton , paras. 763, 764. 
10 Appellate Body Report, US – Upland Cotton , para. 763(f)(i). 
11 Deficit Reduction Act of 2005, US Public Law 109-171, Section 1103. 
12 WT/DSB/M205, 17 February 2006, para. 91.  WT/DS267/30 
 Page 3 
 
 
   (ii) The US Department of Agriculture (" USDA") announced that as of 1 July 2005, it 
would no longer take applications for ECGs under GSM 103;13 
  (iii) As of 1 July 2005, USDA amended th e fee schedules for EC Gs issued under the 
GSM 102 and SCGP programs.
14 
 
C. Non-existence of Measures, and Omissions/Deficiencies of Existing Measures 
 
9. Brazil believes that measures taken by the Un ited States to comply with the recommendations 
and rulings of the DSB in some respects do not exist, a nd to the extent they do exist, are not consistent 
with the Agreement on Agriculture  and the SCM Agreement .  Brazil identifies below instances in 
which US measures do not exist, as well as omissions and deficiencies with respect to those measures 
taken to comply that do exist.  
 1. Non-existence and omissions/defici encies regarding the actionable subsidy-
related recommendations and rulings of the DSB 
 
10. With respect to the actionable subsidy-re lated recommendations and rulings of the DSB, 
Brazil believes that the United States has failed to take  appropriate steps to remove the adverse effects 
or withdraw the subsidies found to cause adverse effect s.  The United States' failure to take these steps 
results in US subsidies for upland cotton causing serious  prejudice to the interest s of Brazil, within the 
meaning of Articles 5(c) and 6.3 of the SCM Agreement .   
 11. Brazil divides its concerns regarding the US fa ilure to take appropriate steps to remove the 
adverse effects or withdraw the subsidies into tw o parts:  the non-existence of measures taken to 
comply, and the consistency of those measures ta ken to comply with the covered agreements. 
 
  (a) Non-existence of measures taken to comply 
 
12. First, the only measure taken by the United States to comply with the adverse effects-related recommendations and rulings of the DSB ( i.e., the repeal of the Step 2 program, cited as measure 
taken to comply (i) in Section B above), did not ta ke effect until 1 August 2006, or over 10 months 
following the expiry of the implementation period,  on 21 September 2005.  At least during the period 
21 September 2005 through 31 July 2006, measures take n to comply did not exist, within the meaning 
of Article 21.5 of the DSU.  13. Second, the United States has taken no measures whatsoever to comply with the 
recommendations and rulings of the DSB concerni ng the US marketing loan and counter-cyclical 
payment programs under the FSRI Act of 2002, as ame nded, as well as paym ents made under these 
                                                     
 
13 See "USDA announces changes to export credit guarantee programs to comply with WTO Findings," 
USDA FAS Online News Release, 30 June 2005, available at http://www.fas.usda.gov/scriptsw/PressRel ease/pressrel_dout.asp?PrNum=0092-05
.  See also  "Notice to GSM-
103 Program Participants", USDA FAS Program Announcement, 30 June 2005, available at 
http://www.usda.gov/documents/0094GSM103Notice.doc .   
14  See "USDA announces changes to export credit guarantee programs to comply with WTO 
Findings," USDA FAS Online News Release, 30 June 2005, available at 
http://www.fas.usda.gov/scriptsw/PressRel ease/pressrel_dout.asp?PrNum=0092-05 .  See also  "USDA changes 
its fees to risk-based method for the GSM-102 and Supplier Credit Guarantee programs", USDA FAS Online 
News Release, 30 June 2005, available at 
http://www.fas.usda.gov/scriptsw/PressRel ease/pressrel_dout.asp?PrNum=0093-05 .  See also GSM-102 Fee 
Schedule, available at www.fas.usda.gov/excredits/gsm102fees.html . and SCGP Fee Schedule, available at 
www.fas.usda.gov/excredits/scgpfees.html .   WT/DS267/30 
Page 4  
 
  programs.  In this respect, measures taken to comply  do not exist, within the meaning of Article 21.5 
of the DSU.  14. As a consequence of these two failures, the United States has failed, as directed by the recommendations and rulings of the DS B, to take appropriate steps to remove the adverse effects of or 
to withdraw the subsidies from the US marketing loan, counter-cyclical and Step 2 payment programs 
under the FSRI Act of 2002, as amended, as well as  payments made under these programs.  These 
failures mean that, as in previous marketing years,  the US marketing loan, counter-cyclical and Step 2 
payment programs under the FSRI Act of 2002, as amende d, taken alone and/or considered together, 
as well as payments made under these programs, cause: 
 
• significant price suppression in the world market for upland cotton, within the 
meaning of Article 6.3(c) of the SCM Agreement ; and 
 
• an increase in the US share in the world ma rket for upland cotton in marketing year 
2005, within the meaning of Article 6.3(d) of the SCM Agreement . 
 
(b) Inconsistency of measures taken to  comply with the covered agreements 
 
15. The measure taken by the United States to  comply with the adverse effects-related 
recommendations and rulings of the DSB, identifie d as item (i) in Section B above, is deficient, 
because it fails to remove the adverse effects or wit hdraw the subsidies, and results in inconsistencies 
with Articles 5 and 6.3 of the SCM Agreement .  Specifically, the deficiency manifests itself in three 
inconsistencies: 
   (i) Serious prejudice, with Step 2 
 
16. Brazil believes that the US marketing loan , counter-cyclical and Step 2 payment programs 
under the FSRI Act of 2002, as amended, taken alon e and/or considered together, as well as payments 
made under these programs, cause: 
 
• significant price suppression in the world market for upland cotton within the 
meaning of Article 6.3(c) of the SCM Agreement ;  and 
 
• an increase in the US share in the world ma rket for upland cotton in marketing year 
2005, within the meaning of Article 6.3(d) of the SCM Agreement . 
 
   (ii) Serious prejudice, without Step 2 
 
17. Notwithstanding the US measure taken to comply with the actionable subsidy-related 
recommendations and rulings of the DSB ( i.e., the repeal of the Step 2 program effective 1 August 
2006, cited as measure taken to comply (i) in S ection B above), Brazil considers that the US 
marketing loan and counter-cyclical payment progr ams under the FSRI Act of 2002, as amended, as 
well as payments made under those programs, cause ser ious prejudice to the interests of Brazil, within 
the meaning of Article 5(c) and 6.3 of the SCM Agreement . 
 18. Specifically, irrespective of the effects of the Step 2 program or payments thereunder, the US 
marketing loan and counter-cyclical payment progr ams under the FSRI Act of 2002, as amended, as 
well as payments made under those programs, cause:  
• significant price suppression in the world market for upland cotton within the 
meaning of Article 6.3(c) of the SCM Agreement ; and 
  WT/DS267/30 
 Page 5 
 
 
  • an increase in the US share in the world ma rket for upland cotton in marketing year 
2005, within the meaning of Article 6.3(d) of the SCM Agreement .   
 
   (iii) Threat of serious prejudice 
 
19. Finally, Brazil believes that the United Stat es threatens to cause serious prejudice to the 
interests of Brazil, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , and 
footnote 13 thereto, by failing to take appropriate steps to remove the adverse effects or withdraw 
WTO-inconsistent subsidies for upland cotton.    20. Specifically, Brazil believes that the US marketing loan and counter-cyclical payment 
programs under the FSRI Act of 2002, as amended,  as well as payments mandated to be made 
thereunder, threaten to cause significant price suppression in the world market for upland cotton in 
marketing years 2006
15 and until the expiry or repeal of these programs.   
 
 2. Non-existence and omissions/deficiencies regarding the ECG-related 
recommendations and rulings of the DSB 
 
21. Brazil believes that despite the measures take n to comply cited as items (ii) and (iii) in 
Section B above, the United States has failed to  implement the DSB's recommendation that it 
withdraw the prohibited ECG-related e xport subsidies without delay, under the SCM Agreement , and 
otherwise bring itself into conformity with its obligations, under the Agreement on Agriculture .  
Specifically, Brazil believes that measures taken to comply with the recommendations and rulings of 
the DSB with respect to the ECG programs do not exist in some respects, and to the extent they exist, 
are not consistent with the Agreement on Agriculture  and the SCM Agreement .  In either case, the 
United States has failed to withdraw fully the ECG-related prohibited s ubsidies subject to the 
recommendations and rulings of the DSB. 
 
22. Brazil divides its concerns regarding the US  failure to withdraw fully the ECG-related 
prohibited subsidies into two parts:  the non-ex istence of measures taken to comply, and the 
consistency of those measures taken to comply with the covered agreements.  
   ( a) Non-existence of measures taken to comply   
 
23. Brazil believes that with respect to ECGs issued under the GSM 102, GSM 103 and SCGP programs prior to 1 July 2005, but still outstanding subsequent to 1 July 2005, the United States has 
taken no action whatsoever to withdraw the subsidy a nd otherwise bring itself into conformity with its 
obligations.  With respect to these outstanding ECGs , measures taken to comply do not exist, within 
the meaning of Article 21.5 of the DSU.   
 24. In this respect, Brazil's concerns with the US failure to take measures to comply extend to 
ECGs issued under the GSM 102, GSM 103 and SCGP  programs prior to 1 July 2005, but still 
outstanding subsequent to 1 July 2005, to suppor t the export of:  upland cotton and other unscheduled 
products; and, rice. 
 
(b) Inconsistency of measures taken to  comply with the covered agreements 
 
25. Brazil believes that the United States provides export subsidies (under Articles 1, 3.1(a) and 
3.2 of the SCM Agreement , as well as under item (j) to the Illustrative List of Export subsidies 
included as Annex I to the SCM Agreement  (the "Illustrative List")) through the GSM 102 and SCGP 
programs, and ECGs provided under these program s, and has applied those export subsidies 
                                                     
 
15 Marketing year 2006 lasts from 1 August 2006 until 31 July 2007. WT/DS267/30 
Page 6  
 
  subsequent to 1 July 2005 in a manner that results in circumvention of the United States' export 
subsidy commitments.  In this respect, the United Stat es' measures taken to co mply are not consistent 
with Articles 10.1 and 8 of the Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the SCM 
Agreement . 
 
26. Specifically, and notwithstanding the US measures taken to comply cited as items (ii) and (iii) 
in Section B above, the GSM 102 and SCGP program s, and ECGs provided thereunder, are export 
subsidies under the Agreement on Agriculture  and the SCM Agreement , based on the following two 
grounds:  
• The programs and ECGs provided there under provide and c onstitute financial 
contributions (loan guarantees) that confer be nefits on recipients, within the meaning 
of Article 1 of the SCM Agreement , and that are contingent upon export performance, 
within the meaning of Article 3.1(a) of the SCM Agreement ; and, separately and 
independently, 
 
• The programs do not levy premium rates ade quate to cover the long-term operating 
costs and losses of the GSM 102 and SCGP pr ograms, within the meaning of item (j) 
of the Illustrative List. 
 27. Further, subsequent to 1 July 2005, ECGs  under the GSM 102 and SCGP programs have been 
applied to circumvent US export subsidy commitme nts, within the meaning of Article 10.1 of the 
Agreement on Agriculture .  Brazil is concerned that ECGs  under the GSM 102 and SCGP programs 
have been provided subsequent to 1 July 2005 to support the export of:  upland cotton and other 
unscheduled products; and, rice, pigmeat and pou ltry meat, in excess of US reduction commitment 
levels for those products.
16   
 28. As a result and to the extent of this violati on of Article 10.1 (and, as a consequence, Article 8) 
of the Agreement on Agriculture , the GSM 102 and SCGP programs, and ECGs provided thereunder, 
are subject to the prohibition against export subsidies included in Articles 3.1 and 3.2 of the SCM Agreement .  On the grounds cited in paragraph 26 above, Brazil believes that the GSM 102 and 
SCGP programs, and ECGs provided thereunder, are prohibited export subsidies, within the meaning 
of Articles 3.1(a) and 3.2 of the SCM Agreement . 
 
D. Conclusion 
 
29. Accordingly, because there is disagreement as  to the existence and consistency with a covered 
agreement of measures taken to comply with the r ecommendations and rulings of the DSB, within the 
meaning of Article 21.5 of the Understanding on Ru les and Procedures Governing the Settlement of 
Disputes ("DSU"), Brazil seeks recourse to  dispute settlement under this provision.
17  Brazil requests 
that the DSB refer the matter to the original panel, if possible, pursuant to Article 21.5 of the DSU.   
 
__________ 
                                                      
16 Exports that benefited from GSM 102 and SCGP ECGs subsequent to 1 July 2005 are currently 
reflected in the July 2005 and Sept ember 2005 (fiscal year end), as we ll as July 2006 "Monthly Summary of 
Export Credit Guarantee Activity," USDA FAS Online, available at 
http://www.fas.usda.gov/excredits/Monthly/ecg.html. 
17 Brazil notes that informal discussions regarding this matter were held with the United States on 
19 July 2006; however, consultations within the meaning of Article 4 of the Understanding on Rules and 
Procedures Governing the Settlement of Disputes ("DSU") were not held.