Organization
WT/DS267/R
8 September 2004
united states – subsidies on upland cotton
On 27
September 2002, the Government of Brazil requested consultations with the
Government of the United States pursuant to Articles 4.1, 7.1 and 30 of the Agreement on Subsidies and Countervailing
Measures ("SCM Agreement"),
Article 19 of the Agreement on
Agriculture, Article XXII of the GATT
1994 and Article 4 of the Understanding
on Rules and Procedures Governing the Settlement of Disputes ("DSU") concerning certain subsidies
provided to United States producers, users and exporters of upland cotton as
well as legislation, regulations, statutory instruments and amendments thereto
providing such subsidies. The United States
and Brazil held consultations on 3, 4 and 19 December 2002 and on 17 January
2003, but failed to settle the dispute.
This
dispute concerns various United States domestic support measures and other
United States measures which Brazil alleges are export subsidies. Brazil
alleges that the measures are inconsistent with certain United States
obligations under the Agreement on
Agriculture, the SCM Agreement
and the GATT 1994. The measures as
identified in Brazil's request for the establishment of a panel are alleged
prohibited and actionable subsidies provided to United States producers, users
and/or exporters of upland cotton, as well as legislation, regulations and
statutory instruments and amendments thereto providing such subsidies
(including export credit guarantees), grants, and any other assistance to
United States producers, users and exporters of upland cotton. They include measures referred to as
marketing loan programme payments (including marketing loan gains and loan
deficiency payments (LDPs)), user marketing (step 2) payments, production
flexibility contract payments, market loss assistance payments, direct
payments, counter-cyclical payments, crop insurance payments, cottonseed
payments and export credit guarantee programmes, which are described below.
Briefly,
Brazil claims that the United States is in breach of its export subsidy
obligations under the Agreement on
Agriculture and the SCM Agreement,
as follows:
(i)
user marketing
(Step 2) payments to exporters under Section 1207(a) of the FSRI Act of
2002 are per se export subsidies
listed in Article 9.1(a) of the Agreement
on Agriculture, or, alternatively, under Article 10, and are inconsistent
with Articles 3.3 and/or 8 of the Agreement
on Agriculture, as well as with Articles 3.1 and 3.2 of the SCM Agreement;
(ii)
the GSM 102, GSM 103 and
SCGP export credit guarantee programmes in respect of exports of eligible
agricultural commodities are export subsidies inconsistent with Articles 8
and 10.1 of the Agreement on Agriculture,
as well as with Articles 3.1 and 3.2 of the SCM
Agreement; and
The ETI
Act of 2000 is inconsistent with Articles 8 and 10.1 of the Agreement on
Agriculture, as well as with Articles 3.1 and 3.2 of the SCM Agreement.
Brazil contends that none of the United States' alleged export subsidies are
exempt from actions based on Article 3 of the SCM Agreement, within the meaning of Article 13(c)(ii) of the Agreement on Agriculture, because they
do not conform fully to the export subsidy provisions in Part V of the Agreement on Agriculture.
1.1
In light of the findings
above, we conclude as follows:
(a) Article 13 of the Agreement on Agriculture is not in the nature of an affirmative
defence;
(b) PFC payments, DP payments, and the
legislative and regulatory provisions which establish and maintain the DP
programme, do not satisfy the condition in paragraph (a) of
Article 13 of the Agreement on
Agriculture;
(c) United States domestic support measures
considered in Section VII:D of this report grant support to a specific
commodity in excess of that decided during the 1992 marketing year and,
therefore, do not satisfy the conditions in paragraph (b) of Article 13 of
the Agreement on Agriculture and,
therefore, are not exempt from actions based on paragraph 1 of
Article XVI of the GATT 1994 or
Articles 5 and 6 of the SCM Agreement;
(d) concerning United States export credit
guarantees under the GSM 102, GSM 103 and SCGP export credit guarantee
programmes:
United States export credit
guarantees under the GSM 102, GSM 103 and SCGP export credit guarantee
programmes are export subsidies applied in a manner which results in
circumvention of United States' export subsidy commitments, within the meaning
of Article 10.1 of the Agreement on
Agriculture and they are therefore inconsistent with Article 8 of
the Agreement on Agriculture;
as they do not conform fully to
the provisions of Part V of the Agreement on Agriculture, they do not satisfy
the condition in paragraph (c) of Article 13 of the Agreement on Agriculture and, therefore, are not exempt from
actions based on Article XVI of the GATT
1994 or Articles 3, 5 and 6 of the SCM
Agreement;
United States export credit
guarantees under the GSM 102, GSM 103 and SCGP export credit guarantee
programmes are provided by the United States government at premium rates which
are inadequate to cover long-term operating costs and losses of the programmes
within the meaning of item (j) of the Illustrative List of Export Subsidies in
Annex I of the SCM Agreement, and
therefore constitute per se export
subsidies prohibited by Articles 3.1(a) and 3.2 of the SCM Agreement.
(ii) however, in respect of exports of unscheduled agricultural
products not supported under the programmes and other scheduled agricultural
products:
the United States has established
that export credit guarantees under the GSM 102, GSM 103 and SCGP export credit
guarantee programmes have not been applied in manner which either results in,
or which threatens to lead to, circumvention of United States export subsidy
commitments within the meaning of Article 10.1 and that they therefore are not
inconsistent with Article 8 of the Agreement
on Agriculture;
in these circumstances, and as
Brazil has also not made a prima facie case before this Panel that the
programmes do not conform fully to the provisions of Part V of the Agreement on Agriculture, this Panel
must treat them as if they are exempt from actions based on Article XVI of
the GATT 1994 and Article 3 of the SCM Agreement in this dispute.
(i) section 1207(a) of the FSRI Act of 2002 providing for user
marketing (Step 2) payments to exporters of upland cotton is an
export subsidy, listed in Article 9.1(a) of the Agreement on Agriculture, provided in respect of upland cotton, an
unscheduled product. It is, therefore,
inconsistent with the United States' obligations under Articles 3.3 and 8 of
the Agreement on Agriculture;
(ii) as it does not conform fully to the provisions of Part V of
the Agreement on Agriculture, it does
not satisfy the condition in paragraph (c) of Article 13 of the Agreement on Agriculture and, therefore,
is not exempt from actions based on Article XVI of the GATT 1994 or Articles 3, 5 and 6 of the SCM Agreement;
(iii) section 1207(a) of the FSRI Act of
2002 providing for user marketing (Step 2) payments to exporters of upland
cotton is an export subsidy prohibited by Articles 3.1(a) and 3.2 of the
SCM Agreement.
(g) concerning
serious prejudice to the interests of Brazil:
(ii) however, Brazil has not established
that:
the effect of PFC payments, DP
payments and crop insurance 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; or
the effect of the United States
subsidy measures listed in paragraph Error! Reference source not found.
of Section VII:G of this report is an increase in the United States' world
market share within the meaning of Article 6.3(d) of the SCM Agreement constituting serious
prejudice within the meaning of Article 5(c) of the SCM Agreement.
(h) concerning
the ETI Act of 2000:
(i) Brazil
has not made a prima facie case
before this Panel that the ETI Act of 2000 and alleged export subsidies
provided thereunder are inconsistent with Articles 10.1 and 8 of the Agreement on Agriculture in respect of
upland cotton;
(ii) with
respect to the condition in Article 13(c)(ii) of the Agreement on Agriculture, as Brazil has also not made a prima facie
case before this Panel that they do not conform fully to the provisions of Part
V of the Agreement on Agriculture in
respect of upland cotton, this Panel must treat them as if they are exempt from
actions based on Article XVI of the GATT
1994 and Article 3 of the SCM
Agreement in this dispute.
1.2
Under Article 3.8 of the
DSU, in cases where there is an
infringement of the obligations assumed under a covered agreement, the action
is considered prima facie to constitute a case of nullification or
impairment. We conclude that, to the
extent that the United States has acted inconsistently with the covered
agreements, it has nullified or impaired benefits accruing to Brazil under
these agreements.
1.3
In light of these
conclusions:
(a) we recommend pursuant to Article 19.1 of the DSU that the United States bring its
measures listed in paragraphs 8.1(d)(i) and 8.1(e) above into conformity with
the Agreement on Agriculture;
(b) as required by Article 4.7 of the SCM Agreement, we recommend that the United States withdraw the
prohibited subsidies in paragraphs 8.1(d)(i) and 8.1(e) above without
delay. The time-period we specify must
be consistent with the requirement that the subsidy be withdrawn "without
delay". In any event, this is at the latest within six months
of the date of adoption of the Panel report by the Dispute Settlement Body or 1
July 2005 (whichever is earlier);
(c) pursuant to Article 4.7 of the SCM Agreement, we recommend that the United States withdraw the
prohibited subsidy in paragraph 8.1(f) above without delay and, in any
event, at the latest within six months of the date of adoption of the Panel
report by the Dispute Settlement Body or 1 July 2005 (whichever is earlier);
and
(d) we recall that, in respect of the subsidies subject to our
conclusion in paragraph 8.1(g)(i) above, pursuant to Article 7.8 of the SCM Agreement:
"7.8 Where a panel
report or an Appellate Body report is adopted in which it is determined that
any subsidy has resulted in adverse effects to the interests of another Member
within the meaning of Article 5, the Member granting or maintaining such
subsidy shall take appropriate steps to remove the adverse effects or shall withdraw
the subsidy."
Accordingly, upon adoption of this report, the United
States is under an obligation to "take appropriate steps to remove the
adverse effects or ... withdraw the subsidy".
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