WASHINGTON - U.S. Trade Representative Robert B. Zoellick said today a World
Trade Organization (WTO) panel has issued a mixed verdict in a dispute brought
by Brazil challenging several types of U.S. agricultural support measures,
including support for cotton farmers. The United States has announced its
intention to appeal aspects of today’s report. The process is lengthy, and there
will be no immediate impact on US farm programs.
In the panel proceedings, the United States successfully defended U.S.
decoupled income support payments – such as direct payments under the 2002 farm
legislation – as not causing "serious prejudice" to Brazil’s interests.
Specifically, the panel agreed with the United States that income support
provided to U.S. cotton farmers and others that is fully decoupled from
production and prices – that is, a recipient does not have to produce cotton to
get the payment and can choose to produce nothing at all – has not suppressed or
depressed world cotton prices.
"We welcome the panel’s findings that U.S. decoupled income support payments
have not caused ‘serious prejudice’ under WTO rules. This report confirms that
reforms in our 1996 farm legislation and continued in 2002 have worked and that
fully decoupled payments do not cause WTO-inconsistent effects by distorting
production or trade," said Zoellick.
"U.S. farmers and ranchers are among the most efficient in the world," said
Agriculture Secretary Ann M. Veneman. "U.S. farm programs were designed to be
fully compliant with our WTO obligations. We will strongly defend the U.S.
position and work to ensure a level playing field for U.S. producers."
Many critics have claimed that even decoupled payments spur agricultural
production and drive down prices. However, the panel rejected Brazil’s
arguments, essentially siding with the overwhelming body of agricultural
economics literature showing that these payments have no more than minimal
effects. The report should dispel concerns that all U.S. support payments
distort production and trade.
The panel also sided with the United States in rejecting several of Brazil’s
other claims. For example:
• the panel found that Brazil had failed to show that U.S. domestic support
programs caused an increase in U.S. world market share for upland cotton,
• the panel also found that certain U.S. export credit guarantees were
consistent with U.S. WTO obligations,
• finally, and most importantly in terms of future implications of this
ruling, the Panel declined to find that U.S. domestic support programs
threatened to cause, or per se cause, serious prejudice to Brazil's interests
However, the panel did side with Brazil on some of its claims that some U.S.
farm payments cause adverse effects to Brazil and that other U.S. measures are
prohibited, including export credit guarantees for some agricultural
"We strongly disagree with some aspects of the panel report, which we will be
appealing. The facts do not show that U.S. farm programs have distorted trade
and caused low cotton prices. Moreover, some aspects of the panel report belong
in negotiation and not litigation, namely in the Doha Development Agenda
negotiations. We believe the Appellate Body will agree," continued Zoellick.
The United States believes that the best way to address any distortions in
world agricultural markets is through the WTO agriculture negotiations.
Multilateral commitments to reduce tariffs and subsidies will increase role of
market forces globally and is the only way to address core issues.
The United States has been a leader in the Doha Round of trade negotiations,
including playing a key role in July on a framework agreement for the
agriculture negotiations. This framework builds on the U.S. comprehensive
proposal in 2002 to reform all trade-distorting measures in agriculture. The
U.S. objective is to create new market access opportunities for all countries by
achieving specific reform commitments in each of the areas of export subsidies,
trade-distorting domestic support and market access in all countries.
Brazil challenged numerous U.S. agricultural programs as being
WTO-inconsistent and as not being protected by the "Peace Clause".
Brazil’s principal claims were that:
(1) U.S. domestic support for cotton causes "serious prejudice" to Brazilian
interests by depressing or suppressing world cotton prices and unfairly
expanding or maintaining U.S. world market share,
(2) U.S. export credit guarantees for all commodities confer export subsidies
(the United States has no allowable export subsidies for most agricultural
(3) Step 2 payments for cotton are both prohibited export subsidies and
prohibited import substitution subsidies; and
(4) FSC/ETI tax benefits are prohibited export subsidies.
The WTO panel report is a long and complicated document, and the panel made
findings that side with Brazil on certain of its claims in this dispute and
other findings that side with the United States:
• The panel found that the "Peace Clause" in the WTO Agreement on Agriculture
did not apply to a number of U.S. measures, including (1) domestic support
measures and (2) export credit guarantees for "unscheduled commodities" and rice
(a "scheduled commodity"). Therefore, Brazil could proceed with certain of its
• The panel found that export credit guarantees for "unscheduled commodities"
(such as cotton and soybeans) and for rice are prohibited export subsidies.
However, the panel also found that Brazil had not demonstrated that the
guarantees for other "scheduled commodities" exceeded U.S. WTO reduction
commitments and therefore breached the Peace Clause. Further, Brazil had not
demonstrated that the programs threaten to lead to circumvention of U.S. WTO
reduction commitments for other "scheduled commodities" and for "unscheduled
commodities" not currently receiving guarantees.
• Some U.S. domestic support programs (i.e., marketing loan,
counter-cyclical, market loss assistance, and Step 2 payments) were found to
cause significant suppression of cotton prices in the world market in marketing
years 1999-2002 causing serious prejudice to Brazil’s interests.
• However, the panel found that other U.S. domestic support programs (i.e.,
production flexibility contract payments, direct payments, and crop insurance
payments) did not cause serious prejudice to Brazil’s interests because Brazil
failed to show that these programs caused significant price suppression.
• The panel also found that Brazil failed to show that any U.S. program
caused an increase in U.S. world market share for upland cotton constituting
• The panel did not reach Brazil’s claim that U.S. domestic support programs
threatened to cause serious prejudice to Brazil’s interests in marketing years
2003-2007. The panel declined to find that U.S. domestic support programs per se
cause serious prejudice in those years.
• The panel also found that Brazil had failed to establish that FSC/ETI tax
benefits for cotton exporters were prohibited export subsidies.
• Finally, the panel found that Step 2 payments to exporters of cotton are
prohibited export subsidies, not protected by the Peace Clause, and Step 2
payments to domestic users are prohibited import substitution subsidies because
they were only made for U.S. cotton.
Peace Clause - Article 13 of the WTO Agreement on Agriculture is commonly
referred to as the Peace Clause. Generally, as long as a WTO Member is meeting
the criteria set out in Article 13, such as domestic support and export subsidy
reduction commitments, other WTO Members are prohibited during the
implementation period of the Agreement from challenging those domestic support
or export subsidy measures through the WTO dispute settlement process.
Unscheduled commodities - products for which the United States is not
permitted to provide export subsidies because they are not set out in the export
subsidy part of the final U.S. WTO schedule which the United States filed in
1994. "Scheduled commodities" are set out in the U.S. schedule, and the United
States is permitted to provide export subsidies up to the scheduled level.
Besides rice, U.S. "scheduled commodities" are wheat, skim milk powder, coarse
grains, butter, bovine meat, other milk products, poultry meat, vegetable oils,
live dairy cattle, cheese, eggs, and pigmeat.