UNITED STATES – SUBSIDIES ON UPLAND COTTON
Document: Appellate Body report
Date: 7 October 2005
Document codes: WT/DS267/26
Complainant: Brazil
Respondent: U.S.
Third parties: Argentina, Australia, Benin, Canada, Chad, China, Taiwan, EU, India, New Zealand, Pakistan, Paraguay, Venezuela, Japan, Thailand
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 3, 5, 6  Subsidies and Countervailing Measures (SCM)Art. 3.3, 7.1, 8, 9.1, 10.1  AgricultureArt. III:4, XVI  GATT 1994

UNITED STATES – SUBSIDIES ON UPLAND COTTON

Recourse to Article 7.9 of the SCM Agreement

and Article 22.2 of the DSU by Brazil

 The following communication, dated 6 Octobe r 2005, from the delegation of Brazil to the
Chairman of the Dispute Settlement Body, is circulated pursuant to Article 7.9 of the SCM Agreement
and Article 22.2 of the DSU.

 Brazil requests that the following item be in cluded in the agenda of the meeting of the
Dispute Settlement Body (the "DSB") to be held on 18 October 2005:

 " " (DS267)

 A. Recourse to Article 7.9 of the Agre ement on Subsidies and Countervailing Measures
and Article 22.2 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes by Brazil

Background

 On 21 March 2005, the Dispute Settlement Body (the "DSB") adopted the Appellate Body
report and the Panel report in this dispute. The Appellate Body upheld the Panel's finding that the
United States, through the effect of certain pri ce-contingent subsidies, caused significant price
suppression in the world upland cotton market, within the meaning of Article 6.3(c) of the Agreement
on Subsidies and Countervailing Measures (the "S CM Agreement"), constituting serious prejudice
and adverse effects to the interests of Brazil within the meaning of Article 5(c) of the same
Agreement. The recommendations and rulings of the DSB include the recommendation that the
United States take appropriate steps to remove the adverse effects of certain subsidies or withdraw
these subsidies within six months from the date of adoption of the Panel and Appellate Body reports.
The subsidies in question include marketing loan programme payments, user marketing (Step 2)
payments, market loss assistance payments and counter-cyclical payments.

 The compliance period expired on 21 Septembe r 2005. Pursuant to Article 22.2 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU") and
Article 7.9 of the SCM Agreement, Brazil hereby requ ests that the DSB, in its meeting of 18 October
2005, grant Brazil authorization to take counterme asures in the annual amount of US$ 1.037 billion
until such time as the United States withdraws th e above-mentioned subsidies or removes their
adverse effects.

 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 United States, to be defined by Brazil.

 However, Brazil considers that it is not prac ticable or effective to suspend concessions or
other obligations exclusively 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 covered agreements. These
considerations are further explained below.

Suspension of concessions and obligations under Article 22.3(c) of the DSU

 It is neither practicable nor effective for Br azil to suspend concessions and other obligations
on imports of US goods up to a value of approxima tely US$ 1 billion, when, in 2004, the total value
of these imports amounted to US$ 11.3 billion.

 First, the imposition of additional import du ties negatively affects the cost of inputs and
capital goods to Brazilian industry. As a developing country, Brazil cannot place itself at a
competitive disadvantage in domestic and internationa l markets. Second, the rise in import costs will
inevitably have a significant negative impact on cu rrent efforts to control inflation. Given the
asymmetries between the two economies, additiona l import duties would have a much greater
negative impact on Brazil than on the United States.

 Additionally, in Brazil's view, the United States continuing non-compliance renders the
circumstances "serious," within the meaning of Article 22.3(c) of the DSU, given that Brazilian
producers of upland cotton will continue to suffer serious losses so long as the United States does not
withdraw the measures at issue or remove their adverse effects.

Summary of countermeasures

 For the reasons given above, Brazil intends to take countermeasures in the form of the
suspension of tariff concessions and related ob ligations 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 prac ticable or effective to limit countermeasures to
additional import duties, and considering that the circumstances are serious enough, Brazil may, to the
extent necessary, resort to countermeasures in th e form of suspension of obligations under the
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
any, some or 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