18 October 2004
United States Appeals WTO Ruling on Cotton Subsidies
Letter to trade organization's appellate body cites "erroneous findings"
Washington -- The United States is appealing a World Trade Organization (WTO) ruling that U.S. cotton subsidies violate international trading rules.
In an October 18 letter to the WTO appellate body, the U.S. Mission to the WTO said the organization's dispute settlement body (DSB) had based its ruling against the United States on "erroneous findings on issues of law and related legal interpretations."
Among the points that the United States plans to appeal is the DSB finding that U.S. subsidies have suppressed world-market prices for cotton. The letter lists a total of 14 points in the DSB ruling that the United States will challenge.
Under WTO rules, the appellate body has up to three months to study U.S. objections to the ruling in the case, which was originally brought by Brazil, and issue its determination.
After formal release of the ruling, U.S. Trade Representative Robert Zoellick on September 8 gave notice that the United States would appeal.
"We strongly disagree with some aspects of the panel report, which we will be appealing," Zoellick said in a news release. "The facts do not show that U.S. farm programs have distorted trade and caused low cotton prices."
Zoellick reiterated the U.S. position that some of the issues raised in the cotton-subsidy case should be resolved through ongoing WTO negotiations rather than dispute-settlement proceedings.
One part of the panel ruling concerned what is called the "peace clause" from the 1994 agreement creating the WTO, which generally prohibited challenges to domestic and export agriculture subsidies during the agreement's implementation period. The panel ruled that the peace clause did not cover U.S. domestic subsidies and export credit guarantees for cotton.
The panel also ruled that some U.S. domestic subsidies did depress world cotton prices, thus harming Brazilian competitors. Some of those subsidies go to marketing loans and counter-cyclical payments, which are made when commodity prices fall below a threshold. Other subsidies, called Step 2 payments, are made to domestic users and exporters when U.S. cotton prices exceed a threshold, thus promoting use of U.S. cotton even if it has a higher price than foreign cotton.
(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
