WASHINGTON — The U.S. and Brazil said on Wednesday they have reached an agreement to end a decade-old cotton-subsidy dispute that had placed U.S. apparel and textile exports in the crosshairs.
This story first appeared in the October 2, 2014 issue of WWD. Subscribe Today.
The two countries have signed a memorandum of understanding that will result in a onetime U.S. payout of $300 million to the Brazil Cotton Institute stemming from a long-running World Trade Organization dispute and an earlier framework agreement the two sides forged in 2010. The MOU also will provide for additional uses for the funds, such as research in conjunction with U.S. institutions.
“I am pleased that the United States and Brazil have found a permanent resolution to the cotton dispute,” said U.S. Trade Representative Michael Froman. “Today’s agreement brings to a close a matter which put hundreds of millions of dollars in U.S. exports at risk. The United States and Brazil look forward to building on this significant progress in our bilateral economic relationship.”
U.S. Agriculture Secretary Tom Vilsack said, “Through this negotiated solution, the United States and Brazil can finally put this dispute behind us. 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.”
Other terms of the MOU include new rules governing the fees and guarantees the U.S. provides cotton producers under the so-called GSM-102 program.
For its part, Brazil has agreed to terminate its case against U.S. cotton subsidies at the WTO within 21 days and relinquish its rights to countermeasures against the U.S. Brazil also has agreed not to bring any new actions to the WTO against U.S. cotton support programs while the current U.S. farm bill is in force or against agricultural export credit guarantees under a U.S. program as long as it adheres to the agreed-upon terms.
Brazil brought a WTO case against the U.S. in 2002, arguing that American cotton-subsidy programs depressed global cotton prices and violated WTO rules. The WTO sided with Brazil and issued a series of findings against the U.S. between 2005 and 2008.
The WTO subsequently authorized Brazil to impose sanctions against U.S. exports, ruling America failed to adequately end cotton subsidies. However, the U.S. and Brazil reached an agreement in June 2010 that forestalled the imposition of sanctions on American exports. Under that agreement, which averted $800 million in sanctions, the U.S. agreed to make some changes in its cotton export and credit guarantee program and work with Brazil to establish a $147.3 million fund to provide technical assistance and capacity-building for the Brazilian cotton industry.
Brazil identified a list of U.S. exports it would sanction, including raw cotton, woven fabric, cotton pants and shorts, and some jewelry and beauty products. The agreement was understood to hinge on Congress making changes to cotton programs to bring them into compliance with the WTO findings. Since then, U.S. officials said they have made monthly payments to the Brazil Cotton Institute for technical assistance and capacity-building and worked to settle the dispute.