RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/DSB/M/193 
28 July 2005 
 (05-3399) 
Dispute Settlement Body 
15 July 2005  
 
 
 
MINUTES OF MEETING 
 
Held in the Centre William Rappard  
on 15 July 2005  
 
Chairman:  Mr. Eirik Glenne (Norway) 
 
 
1. United States – Subsidies on upland cotton 
(a) Recourse to Article 4.10 of the SCM Agreement and Article 22.2 of the DSU by 
Brazil (WT/DS267/21) 
1. The Chairman  drew attention to the communicati on from Brazil contained in document 
WT/DS267/21, and invited the representative of Brazil to speak. 
2. The representative of Brazil  said that on 21 March 2005, the DSB had adopted the Reports of 
the Panel and the Appellate Body pertaining to the di spute under consideration.  By doing so, the DSB 
had recommended that the United States withdraw by 1 July 2005 the prohibited subsidies under the 
export credit guarantees programs GSM 102, GSM 103 and SCGP, and under the so-called Step 2 
program.  One day prior to the expiration of the implementation deadline, on 30 June 2005, the 
United States had announced the adoption of measures concerning the export credit guarantee 
programs.  These measures basically consisted of th e following:  (i) the introduction of a new risk-
based fee structure for guarantees under GSM 102 and SCGP and (ii) no longer accepting applications 
for guarantees under GSM 103.  No action at all had b een taken in relation to Step 2 within the time-
period specified by the DSB. 
3. He recalled that on 5 July 2005, when Brazil’s request for authorizati on to take appropriate 
countermeasures pursuant to Article 4.10 of the SC M Agreement and to suspend concessions or other 
obligations pursuant to Article 22.2 of the DS U had been circulated to WTO Members, the 
United States had made an announcement of addi tional measures with a view to implementing the 
DSB’s recommendations concerning the prohibited subs idies in this case.  Pursuant to the second 
announcement, the US administration would send a proposal to the US Congress that, if approved, should result in:  (i) the elimination of the Step 2 pr ogram;  (ii) the removal of the  1 per cent cap on 
fees that could be charged under the export credit gua rantee programs;  and (iii) the termination of the 
GSM 103 program.  In light of the situation that had just been described, Brazil had decided to reserve 
its rights by requesting authorization to take appr opriate countermeasures pursuant to Article 4.10 of 
the SCM Agreement and to suspend concessions or ot her obligations pursuant to Article 22.2 of the 
DSU vis-à-vis  the United States.  The corresponding document (WT/DS267/21) had been filed by 
Brazil and was before the DSB at the present meeting.   Brazil hereby requested that the DSB approve 
the authorization set out in its request. 
 WT/DSB/M/193 
Page 2  
 
4. As stated in its request, Brazil, if authorized by the DSB, may take appropriate 
countermeasures in accordance with Article 4.10 of  the SCM Agreement and Article 22.2 of the DSU 
until such a time when the United States withdraw th e prohibited subsidies identified by the Panel and 
the Appellate Body, in an amount that corresponded to :  (i) Step 2 payments made in the most recent 
concluded marketing year;  and (ii) the total of exporter applications  received under GSM 102, 
GSM 103, and SCGP, for all unscheduled commodities and rice, for the most recent concluded fiscal 
year.  In principle, these countermeasures would take  the form of suspension of tariff concessions and 
related obligations under the GATT 1994 by means of  the imposition of additional import duties on a 
list of products imported from the United States, to be  defined by Brazil.  Brazil, however, considered 
that it was not practicable or effective to suspend concessions or other obligations with respect to the 
same sector/agreement as that in which the Pane l and the Appellate Body had found the violations. 
Brazil also believed that the circumstances were  serious enough to justify the suspension of 
concessions or obligations under the TRIPS Agre ement and the GATS, as indicated in Brazil's 
request. 
5. He noted that that Brazil's request referred only to the prohibited subsidies found in the 
present case.  It did not deal with the subsidies that  violated the serious prejudice provisions under the 
SCM Agreement, in respect of which the United States still had time – as Brazil expected – to take the 
necessary steps to withdraw the illegal meas ures or remove their adverse effects. 
6. The DSB had also been notified that the United States and Brazil had reached an 
understanding – contained in doc ument WT/DS267/22 – on procedures under Articles 21 and 22 of 
the DSU and Article 4 of the SCM Agreement.  Am ong other clauses, the understanding provided that 
Brazil and the United States would, at the earliest possible moment, request the arbitrator to be 
appointed once the United States objected to the requ est put forth by Brazil to suspend its work.  In 
the event that the DSB, following a compliance pa nel procedure, found that measures taken by the 
United States to comply with the relevant recommend ations and rulings of the DSB were inconsistent 
with the covered agreements referred to in the Article 21.5 compliance panel request, the arbitrator 
would resume its work at Brazil’s request.  On the other hand, in the event that the DSB were to find 
that measures taken by the United States to co mply with the relevant DSB's rulings and 
recommendations were not inconsistent with the co vered agreements referred to in the Article 21.5 
compliance panel request, Brazil would withdraw its  request under Article 22.2 of the DSU, thereby 
terminating the Article 22.6 arbitration procedure. 
7. Before turning to a brief explanation of the r easons that had led Brazil to sign the bilateral 
understanding with the United States, he wished to underscore that, like Brazil's request for the DSB's 
authorization, the procedural agreement referred only to the prohibited subsidies found in the Cotton 
dispute.  He noted that one was faced with an odd situation, in which his country had agreed to an 
understanding that would delay the DSB's author ization for Brazil to adopt countermeasures vis-à-vis  
the US non-compliance, whilst the United States ha d agreed to a procedural understanding even 
though Brazil had decided to present a request to take  countermeasures.  Part of the explanation was 
related to the so-called sequencing issue with whic h all Members had been struggling for years in the 
DSU Review negotiations.  The other part of the equation – the dispute-specific reason – was that 
Brazil acknowledged that the meas ures taken and the announcements  made by the United States 
constituted a positive step toward the resolution of the dispute. 
8. In Brazil's view, much more had to be accomp lished before Brazil could recognize that the 
DSB's recommendations and rulings had been fully implemented in the Cotton case.  Brazil believed, 
however, that the announcements made by the US administration were a positive step and hoped that 
the US Congress would follow-up with concrete a nd timely actions that might enable a mutually 
satisfactory resolution of this dispute;  a dispute that  affected not only the two parties, but a number of 
poor countries in Africa and elsewhere that could no t compete with the massive subsidies granted to 
the US producers of cotton.  In this regard, Braz il would be following the US implementation actions 
with great interest.  WT/DSB/M/193 
 Page 3 
 
 
9. The representative of the United States  said that on 5 July 2005, Brazil and the United States 
had informed the DSB that they had agreed on procedures under Articles 21 and 22 of the DSU and Article 4 of the SCM Agreement in the follow-up to th is dispute.  This agreement had been circulated 
to Members on 8 July 2005 as document WT/DS267/22 .  Pursuant to that agreement, Brazil had 
requested authorization to suspend concessions or other obligations pursuant to Article 22.2 of the 
DSU and to adopt appropriate countermeasures pursuan t to Article 4.10 of the SCM Agreement "[i]n 
order to fully safeguard its rights under the [DSU]."  In response to this procedural step by Brazil, on 
14 July 2005, in document WT/DS267/23, which the Secretariat had just distributed in the room, the United States had objected to the appropriateness of  the countermeasures and the level of suspension 
of concessions or other obligations proposed by Braz il and claimed that the principles and procedures 
set forth in Article 22.3 of the DSU had not been fo llowed, thereby referring the matter to arbitration.  
Thus, the present meeting did not need to be held .  Nevertheless, the United States had no objection if 
the DSB wished to take note of that fact and conf irm that it might not consider Brazil's request for 
authorization, which was the agenda item of the pr esent meeting since the matter was being referred 
to arbitration.  Pursuant to the agreement me ntioned by the US representative, Brazil and the 
United States "will, at the earliest possible moment," jointly request the Article 22.6 arbitrator to 
suspend its work.  The United States had take n significant steps to implement the DSB's 
recommendations and rulings  in this dispute.  As noted in the chapeau to the understanding with 
Brazil, the United States had announced, effectiv e 1 July, administrative changes to the three 
agricultural export credit guarantee programs at i ssue in this dispute.  On 5 July, the US 
administration had announced a legislative proposal to repeal the user marketing "Step 2" cotton 
program and to make further cha nges to the guarantee programs.  As stated at the 20 April 2005 DSB 
meeting, the United States fully intended to impl ement the DSB's recommendations and rulings in this 
dispute.  Thus, the United States did not believe th at the Article 22.6 arbitration, once suspended, 
would need to be re-activated. 
10. The representative of th e European Communities
 said that the EC had participated as a third 
party in the Cotton dispute and would continue to foll ow with great interest the developments in terms 
of implementation. 
11. The DSB took note  of the statements and it was agreed  that the matter raised by the 
United States in document WT/DS267/23 is referred to arbitration, as required by Article 22.6 of the 
DSU. 
__________