UNITED STATES – SUBSIDIES ON UPLAND COTTON
Document: Recourse to Article 21.5 of the DSU by Brazil Request for the Establishment of a Panel
Date: 21 August 2006
Document codes: WT/DS267/30
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 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.

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 ("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.

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.

 (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, and 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 effects. The United States' failure to take these steps
results in US subsidies for upland cotton causing serious prejudice to the interests 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 taken 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 taken 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/PressRelease/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/PressRelease/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/PressRelease/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.

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 DSB, 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 serious 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

• 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 and 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.

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.

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.