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United States: Subsidies on Upland Cotton. WTO Doc. WT/DS267/AB/R
Published online by Cambridge University Press: 27 February 2017
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- Copyright © American Society of International Law 2005
References
1 Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, in World Trade Organization, the Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts 39 (1999) [hereinafter The Legal Texts], reprinted in 33 ILM 1167 (1994). The legal texts are available online at <http://www.wto.org/english/docs_e/legal_e/legal_e.htm>.
2 Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, in The legal. texts, supra note 1, at 275.
3 Appellate Body Report, United States—Subsidies on Upland Cotton, WTO Doc. WT/DS267/AB/R (Mar. 3, 2005) (adopted March 21, 2005) [hereinafter Appellate Body Report]. Reports of the Appellate Body and panels are available at <http://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm>.
4 The Appellate Body had previously found that Canada had exceeded its export subsidy commitments for dairy products. Appellate Body Report, Canada—Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WTO Docs. WT/DS103/AB/R & WT/DS113/AB/R (Oct. 13, 1999) (adopted Oct. 27, 1999).
5 Consistent with a previous Appellate Body decision to permit private representation of members in dispute settlement proceedings, Brazil was assisted throughout the proceedings by a team of lawyers from the Geneva office of Sidley Austin Brown & Wood. See European Communities—Regime for the Importation, Sale and Distribution of Bananas, WTO Doc. WT/DS27/AB/R, paras. 5-10 (Sept. 9, 1997) (adopted Sept. 25, 1997).
6 Panel Report, United States—Subsidies on Upland Cotton, WTO Doc. WT/DS267/R (Sept. 8, 2004) [hereinafter Panel Report].
7 “Step 2” payments are issued to eligible domestic users and exporters of eligible upland cotton whenever the cost of U.S. cotton delivered to northern Europe exceeds the northern European price quotation.
8 Appellate Body Report, supra note 3, paras. 552, 584.
9 Panel Report, supra note 6, paras. 7.1088, .1098.
10 General Agreement on Tariffs and Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, in The Legal Texts, supra note 1, at 21.
11 Appellate Body Report, supra note 3, para. 545 (citing Panel Report, supra note 6, para. 7.1058).
12 Id., paras. 529-52.
13 Id., para. 584 (citing Panel Report, supra note 6, paras. 7.760, .761).
14 Id., para. 674.
15 The first two programs, designated GSM 102 and 103, guarantee loans extended to U.S. exporters by foreign creditors; the third, the SCGP, guarantees loans extended by U.S. exporters to foreign purchasers.
16 Panel Report, supra note 6, para. 7.867. The panel decided that the SCM’s Illustrative List could be read to help define “export subsidy” for the purposes of Article 10.1 of the Agreement on Agriculture, when a measure did not fit one of the definitions in Article 9.1 of that Agreement. Panel Report, supra note 6, para. 7.803. The main issue on appeal was whether the panel had correctly calculated the amounts of revenue and expenditure. The Appellate Body found that it had. Appellate Body Report, supra note 3, paras. 672-74.
17 Appellate Body Report, supra note 3, paras. 631-41.
18 Panel Report, supra note 6, para. 7.875.
19 Brazil’s claims of circumvention, both actual and threatened, concerned other products besides upland cotton. For other scheduled products, including pig and poultry meat, the panel ruled that Brazil had not established a prima facie case of actual circumvention. Id., para. 7.881. The Appellate Body reversed, finding that the panel had not sufficiently analyzed the issue, but found that it did not have sufficient uncontested facts on the record to make its own determination. Appellate Body Report, supra note 3, paras. 692-95.
20 Appellate Body Report, supra note 3, paras. 710, 713-14.
21 The panel ruled that Brazil’s 6.3(d) claim was based on an erroneous interpretation of the article’s text, and thus that Brazil had failed to establish a prima facie case. Panel Report, supra note 6, para. 7.1464. Because Brazil’s appeal of this ruling was conditional on the Appellate Body reversing the panel’s decision on the 6.3(c) claim, which it did not, the Appellate Body did not review the 6.3(d) claim. Appellate Body Report, supra note 3, para. 507.
22 Production flexibility contract payments were made based on producers’ historic production of seven commodities, including upland cotton. Producers still received payment if they grew something else, subject to limitations on using the land for fruits and vegetables.
23 Direct payments function in a way similar to PFCs, except nine commodities are covered.
24 Marketing loan payments covered producers’ expenses when market prices are low, allowing them to wait until the price improved before selling.
25 Market loss assistance payments were emergency loans to compensate producers for losses due to low market prices.
26 Countercyclical payments are issued along with direct payments, but paid when the current price of a commodity is less than a fixed amount (for upland cotton, 72.4 cents per pound during the period in question).
27 See supra note 7.
28 Crop insurance payments cover producers’ losses not only from natural causes, but also from low crop yields or low revenue.
29 Cottonseed payments are emergency payments to offset low prices made to first-time handlers (ginners) and producers of cotton.
30 PFCs were instituted under the FAIR Act of 1996 and discontinued by the FSRI Act of 2002, and the last payments were scheduled to be made not later than September 30, 2002; MLAs were ad hoc measures established by a series of statutes, the last one enacted August 13, 2001.
31 Appellate Body Report, supra note 3, paras. 273-74; see also Panel Report, supra note 6, paras. 7.128, .194(H).
32 Appellate Body Report, supra note 3, paras. 341-42 (citing Panel Report, supra note 6, paras. 7.388, .413, .414, 8.1(b)). Under Article 13(a) (ii) of the Agreement on Agriculture, “green box” measures—measures that conform fully to the provisions of Annex 2 to the Agreement and generally have little or no distorting effect on trade—are exempt from actions under Article XVI of GATT 1994 and Part III of the SCM Agreement.
33 Paragraph 6(b) of Annex 2 to the Agreement on Agriculture provides, in relevant part, that to qualify for green box treatment, the amount of payments “shall not be related to, or based on, the type or volume of production.”
34 Appellate Body Report, supra note 3, para. 329 (citing Panel Report, supra note 6, para. 7.367); see also Panel Report, supra note 6, paras. 7.383-.385.
35 Agreement on Agriculture, Article 13(b) (ii).
36 Appellate Body Report, supra note 3, paras. 352-53 (citing U.S. appellant’s submission, paras. 101-07, 69-75, 120-22).
37 Id., para. 384. The Appellate Body did not disturb the panel’s observations that a “strongly positive relationship” existed between historic and continued production of upland cotton, and that the eligibility and calculation criteria of the subsidies themselves were strongly related to continued production. Id., paras. 376 (citing Panel Report, supra note 6, para. 7.637), 379 (citing Panel Report, supra note 6, paras. 7.513-.516).
38 Id., para. 362. Hence, the Appellate Body found that “support to a specific commodity” includes, but is not limited to, “product-specific” support—measures that, on their face, are directed at a given commodity. Instead, “support” may be inferred from the measures’ “characteristics, structure or design.” Id., paras. 363-70.
39 Id., para. 375; see also id., para. 380 (citing Panel Report, supra note 6, para. 7.646).
40 Id., paras. 390, 392-93.
41 These payments are “price-contingent” because when the price drops below a certain threshold, the government is required to make payment, and the amount is calculated based on the gap between the threshold and the price.
42 Appellate Body Report, supra note 3, para. 496 (citing Panel Report, supra note 6, paras. 7.1416, 8.1(g)(i)). Brazil initially alleged competition in (1) the world market, (2) the Brazilian market, (3) the U.S. market, and (4) forty third-country markets to which both the United States and Brazil export cotton. Panel Report, supra note 6, para. 7.1230. Because the panel found price suppression in the world market, it declined to analyze the other markets, and Brazil did not appeal. Id., para. 7.1315. The panel was first required to find whether the challenged measures were in fact “specific subsidies” within the meaning of SCM Agreement Articles 1 and 2. The panel did so find, and the Appellate Body agreed. Appellate Body Report, supra note 3, para. 462 (citing Panel Report, supra note 6, paras. 7.1120, .1154).
43 Panel Report, supra note 6, para. 7.1350. Brazil did note in its arguments that it disagreed with the panel’s factual conclusions that direct payments did not cause significant price suppression. In a statement with significant potential implications for future challenges, the Appellate Body stated that it did not exclude the possibility that non-price-contingent subsidies could still contribute to price suppression. Appellate Body Report, supra note 3, para. 450 n.589.
44 Appellate Body Report, supra note 3, para. 410 (citing Panel Report, supra note 6, paras. 7.1238-.1244). The panel noted that the text of Article 6.3(a)-(b) places an explicit geographical boundary on the “market” at issue, and that the lack of any such boundary in Article 6.3(c) is significant; the Appellate Body agreed—and noted, moreover, that this interpretation was consistent with the intent of the SCM Agreement, which was to allow complaining members a wide field to challenge subsidies. Appellate Body Report, supra note 3, para. 406 (citing Panel Report, supra note 6, paras. 7.1238-.1240); see also id., para. 406 n.448.
45 Appellate Body Report, supra note 3, para. 411 (citing Panel Report, supra note 6, paras. 7.1245-.1252). The Appellate Body also agreed that the existence of a world market is not a given for every commodity, and must be analyzed on a case-by-case basis. Id., para. 408 (citing Panel Report, supra note 6, paras. 7.1237, .1240 n.1357); see also id., paras. 7.1245-.1247.
46 Id., para. 413 (citing Panel Report, supra note 6, para. 7.1313).
47 Id., para. 411 (citing Panel Report, supra note 6, paras. 7.1260-.1274). The “A-Index”—compiled by Codook, a private, UK-based organization—is the average of the five lowest price quotes from a selection of the principal upland cottons traded in the world market. Panel Report, supra note 6, para. 7.1264.
48 Panel Report, supra note 6, para. 7.1309.
49 Id., para. 7.1361.
50 Appellate Body Report, supra note 3, para. 429 (citing Panel Report, supra note 6, paras. 7.1275-.1363).
51 Id., para. 424 (citing Panel Report, supra note 6, para. 7.1277).
52 Id., para. 434.
53 Panel Report, supra note 6, paras. 7.1282-. 1283. Brazil and the United States both submitted statistics on the United States’ percentage of world export trade and of world production. As to the former, although the two countries’ exact figures differed slightly, the panel found that both submissions showed the same upward growth and roughly the same proportion of world trade. Id., para. 7.1283 n.1390.
54 Id., para. 7.1285.
55 Id., para. 7.1287. The panel also noted that the U.S. adjusted world price—”that is, the determinative price for the availability and magnitude of the United States marketing loan programme payments and user marketing (Step 2) payments,” id., para. 7.1296—tracked closely with the other prices, strengthening its argument that changes in the U.S. market heavily influence the world market. Id., para. 7.1311.
56 Id., para. 7.1290-.1296.
57 The panel ruled that whether price suppression is “significant” requires a case-by-case inquiry, rather than being defined by an excess over a fixed threshold amount. Id., para. 7.1329.
58 Id., para. 7.1332 (referring back to Section VII.D (paras. 7.337-.647) of its report, covering Domestic Support, with emphasis on para. 7.725 n.895). The panel also decided that it was not necessary to quantify exactly the amount of benefit conferred by the subsidies under SCM Agreement Article 6.3(c). Panel Report, supranote 6, para. 7.1349. The Appellate Body agreed, though it said that the panel could have been more explicit. Appellate Body Report, supra note 3, paras. 467-68; see also id., para. 459 (citing Panel Report, supra note 6, paras. 7.1308, .1349).
59 Panel Report, supra note 6, para. 7.1330.
60 Appellate Body Report, supra note 3, para. 449 (citing Panel Report, supra note 6, para. 7.1348).
61 Id., para. 450 (citing Panel Report, supra note 6, paras. 7.1347-. 1350).
62 Id., para. 451 (citing Panel Report, supra note 6, para. 7.1351). The Appellate Body found that this temporal correlation, though insufficient by itself, was significant when considered with the other factors.
63 Id., paras. 452-53 (citing Panel Report, supra note 6, paras. 7.1353, .1354).
64 Panel Report, supra note 6, para. 7.1202 (citing Brazil’s further written submission, para. 183).
65 Id., para. 7.1210 n.1329.
66 Id., para. 7.1205.
67 Id., para. 7.1207.
68 Id., para. 7.1209 (emphasis omitted).
69 Appellate Body Report, supra note 6, para. 458.
70 Id., paras. 429-34.
71 Id., paras. 431, 433.
72 Panel Report, supra note 6, paras. 7.1358-.1361. These factors included: weakness in world demand for cotton due to competing, low-priced synthetic fibres; weak world economic growth; burgeoning U.S textile imports; the strength of the U.S. dollar; and the release of large stocks of cotton by China.
73 Appellate Body Report, supra note 3, para. 458. The panel allowed that some of the alleged factors might also have caused price suppression, but not enough either to attenuate causation from subsidies or to reduce to insignificance the level of price suppression attributable to subsidies. Panel Report, supra note 6, para. 7.1363.
74 Appellate Body Report, supra note 3, para. 448 (citing Panel Report, supra note 6, paras. 7.1205, .1209, .1215).
75 Panel Report, supra note 6, para. 7.1390.
76 See Chambovey, Didier, How the Expiry of the Peace Clause (Article 13 of the WTO Agreement on Agriculture) Might Alter Disciplines on Agricultural Subsidies in the WTO Framework, 36 J. World Trade 305 (2002)CrossRefGoogle Scholar; Richard, H. Steinberg & Timothy, E. Josling, When the Peace Ends: The Vulnerability of EC and US Agricultural Subsidies to WTO Legal Challenge, 6 J. Int’l Econ. L. 369 (2003).Google Scholar
77 Except for the 1958 French Wheat Flour case, in every GATT Article XVI:3 case, and in the context of the Indonesia— Autos claims based on SCM Agreement Article 6.3(a), correlation was not enough: respondents were able to raise factors other than subsidies that might have caused adverse trade effects, so panels concluded that the complainant had not been able to establish a prima facie case. See Panel Report, French Assistance to Exports of Wheat and Wheat Flour, Nov. 21, 1958, GATT BISD (7th Supp.) at 46 Google Scholar; Panel Report, Indonesia—Certain Measures Affecting the Automobile Industry, WTO Docs. WT/DS54/R, WT/DS55/R, WT/DS59/R, & WT/DS62/R (July 2, 1998) (adopted July 23, 1998)Google Scholar; see also Robert, E. Hudec, Does the agreement on Agriculture Work? Agricultural Disputes After the Uruguay Round 10 (Int’l Agric. Trade Res. Consortium Working Paper No. 98-2, 1998)Google Scholar (on file with author).
78 See A. Ellen, Terpstra, Statement Before the Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies, Mar. 3, 2005, at <http://appropriations.house.gov/_files/EllenTerpstraTestimony.pdf>..>Google Scholar
79 See Environmental Working Group, Step 2 Cotton Subsidies for Corporations (Farm Subsidy Database), at <http://www.ewg.org/farm/step2index.php>.