The United States and Brazil Have Agreed to Settle Their Long-Standing Cotton Dispute

The United States and Brazil have agreed to settle their long-standing Cotton dispute in the World Trade Organization (WTO).

As per the agreement, Brazil will relinquish all rights to countermeasures against US trade. In turn, the US will make a one-time final contribution of US$ 300 million to the Brazil Cotton Institute, or IBA. The MOU also provides for additional uses for the funds, such as research in conjunction with US institutions.

Both countries also agreed to formally terminate of the Cotton case at the WTO Dispute Settlement Body within 21 days.

“Brazil has also agreed not to bring new WTO actions against US cotton support programs while the current US Farm Bill is in force or against agricultural export credit guarantees under the GSM-102 program as long as the program is operated consistent with the agreed terms,” the US Department of Agriculture (USDA) said in a statement.

“I am pleased that the United States and Brazil have found a permanent resolution to the Cotton dispute,” said US Trade Representative Michael Froman. The agreement brings to a close a matter which put hundreds of millions of dollars in US exports at risk, he added.

US Agriculture Secretary Tom Vilsack said, “Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year. This removes that threat and ensures American cotton farmers will have effective risk management tools.”

The Cotton dispute is a decade-long dispute brought by Brazil against the US at the WTO. In 2005 and again in 2008, the WTO found that certain US agriculture programs (domestic support to cotton under the marketing loan and countercyclical payment programs, and export credit guarantees under the GSM-102 program) were inconsistent with the commitments made by the US to the WTO. In August 2009, WTO arbitrators provided the level of countermeasures that Brazil could impose against US trade.

Subsequently in June 2010, the US and Brazil signed a Framework Agreement to avert the imposition of countermeasures by Brazil. The Framework provided specific interim steps and a process for quarterly discussions on the programs at issue. The US also made monthly payments to the IBA for technical assistance and capacity building activities for the sector under a related Memorandum of Understanding (MOU).

However, the Framework expired on February 7, 2014, when the 2014 Farm Bill was enacted. The Farm Bill included significant changes to US cotton domestic support programs, along with changes to the GSM-102 program.