WORLD TRADE  
ORGANIZATION  WT/DS267/21 
5 July 2005 
 
 (05-2984) 
 Original:   English 
  
 
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Recourse to Article 4.10 of the SCM Agreement and Article 22.2 of the DSU by Brazil
 
  
 The following communication, dated 4 July 2005, from the delegation of Brazil to the 
Chairman of the Dispute Settleme nt Body, is circulated pursuant to Article 4.10 of the 
SCM Agreement and Article 22.2 of the DSU.  
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  Brazil requests that a special meeting of the Dispute Settlement Body (the "DSB") be held on 15 July 2005 to consider the following agenda item:  
 United States – Subsidies on Upland Cotton  
 Recourse to Article 4.10 of the Agreemen t on Subsidies and Countervailing Measures and 
Article 22.2 of the Understanding on Rules a nd Procedures Governing the Settlement of 
Disputes by Brazil 
 
Background 
 
 Both the Panel and the Appellate Body in th is dispute found some of the US measures under 
review to violate Article 3 of the Agreemen t on Subsidies and Countervailing Measures (the 
"SCM Agreement"). On 21 March 2005, the DSB adopt ed the Appellate Body report and the report of 
the Panel, as modified by the Appellate B ody. The resulting DSB recommendations and rulings 
include the recommendation that the United States withdr aw, by at the latest within six months of the 
date of adoption of the Panel report by the Disput e Settlement Body or 1 July 2005 (whichever is 
earlier), the following prohibited subsidies: (i) the export credit guarantees under the GSM 102, GSM 103 and SCGP export credit guarantee programmes in respect of exports of upland cotton and other unscheduled agricultural products supporte d under the programmes, and in respect of one 
scheduled product (rice); (ii) Section 1207(a) of the Farm Security and Rural Investment (FSRI) Act 
of 2002 providing for user marketing (STEP2) pa yments to exporters of upland cotton; and 
(iii) Section 1207(a) of the FSRI Act of 2002 provi ding for user marketing (STEP2) payments to 
domestic users of upland cotton.  
Adoption of appropriate countermeasures under Article 4.10 of the SCM Agreement 
 
 The period of compliance expired on 1 July 2005. At the meeting of the DSB on 15 July 2005, Brazil will request authorization from the DSB to take appropriate countermeasures pursuant to 
Article 4.10 of the SCM Agreement and Article 22. 2 of the Dispute Settlement Understanding (the 
"DSU"), until such a time when th e United States withdraws the pr ohibited export subsidies identified 
by the Panel and the Appellate B ody, in an amount that corresponds: 
 
 (i) to the STEP2 payments made in the most recent concluded marketing year; and WT/DS267/21 
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 (ii)  to the total of exporter applicati ons received under GSM 102, GSM 103, and SCGP 
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 m eans of the imposition of additional import duties 
on a list of products imported from the Unite d States, to be defined by Brazil. 
  However, Brazil considers that it is not prac ticable or effective to suspend concessions or 
other obligations with respect to the same sector /agreement as that in which the Panel and the 
Appellate Body have found the violations. Brazil also considers that the circumstances are serious 
enough to justify the suspension of concessions or obligations under other c overed agreements. These 
considerations are further explained below. 
 
Suspension of concessions and obligations under Article 22.3(c) of the DSU 
  The suspension of concessions and other obligations corresponding to a value of 
approximately US$3 billion
1 wholly applied to the importation of US goods – which amounted to 
US$11.3 billion in calendar year 2004 – is neither pr acticable nor effective for at least two reasons. 
  First, the imposition of additional import duti es affects the costs of inputs and capital goods 
that are essential to productive chain of the Brazilia n industry. As a developing country, Brazil cannot 
place itself at disadvantage when competing with  foreign products both in the domestic and 
international markets. Second, the rise in impor t costs will inevitably have a significant negative 
impact on current efforts to control inflationary  pressures. Given the asymmetries between the two 
economies, additional import duties would have a mu ch greater negative impact on Brazil than on the 
United States. 
 
 Finally, in Brazil's view, the circumstances are serious enough to justify the imposition of appropriate countermeasures under other covered agre ements. First, the gravity of the violation; 
namely, prohibited subsidies which Brazil estimat es to amount to approximately US$3 billion per 
year. Continuing non-compliance renders the circ umstances serious enough to make a case of 
imposition of appropriate countermeasures under anothe r Agreement. Brazil recalls the Arbitrator's 
words in US – FSC (Article 22.6) :  "as we interpret Article 4.10 of the SCM Agreement, a Member is 
entitled to act with countermeasures that properly ta ke into account the gravity of the breach and the 
nature of the upset in the balance of  rights and obligations in question."
2 In addition to this, 
circumstances must be considered serious given the fact that Brazilian producers of upland cotton will 
continue to suffer serious losses while the United States does not withdraw the measures at issue. 
 
Summary of countermeasures 
 
 For the reasons given above, Brazil intends to  take appropriate countermeasures in the form 
of the suspension of tariff concessions and rela ted obligations under the GATT 1994 by imposing 
additional customs duties on a list of products imported from the United States, to be defined by 
Brazil.   Given that Brazil considers that it is not pr acticable or effective to exclusively apply 
additional import duties, and considering that the circumstances are serious enough, Brazil may resort, 
to the extent necessary, to countermeasures in th e form of suspension of obligations under the 
                                                     
 
1 STEP 2 payments estimated for marketing year 200 4-2005 and total amount of applications received 
for export credit guarantees under GSM 102, GSM 103, and SCGP during fiscal year 2004. 
2 US – FSC , recourse to arbitration under Article 22.6 of the DSU, para. 3.48.  WT/DS267/21 
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 following sections of Part II of the Agreement on Trade-Related Aspects of Intellectual Property 
Rights:   Section 1: Copyright and related rights  Section 2: Trademarks 
 Section 4: Industrial designs 
 Section 5: Patents  Section 7: Protection of undisclosed information. 
 
 Likewise, Brazil may also suspend horizontal and/or sectoral concessions  and obligations for 
all sectors contained in Brazil's Schedule of Specific Commitments (GATS/SC/13) under the General 
Agreement on Trade in Services. Those sectors are: 
  1. Business Services  2. Communication Services  3. Construction and Rela ted Engineering Services 
 4. Distribution Services 
 7. Financial Services  9. Tourism and Travel Related Services  11. Transport Services   Every year, Brazil will notify to the DSB th e amount and the form of the suspension of 
concessions and other obligations in the light of  data concerning the operation of the identified 
programmes in the most recent concluded marketing and fiscal year, as applicable. 
 
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