Temporary Settlement Forestalls Brazil Retaliation in WTO Case

April 9, 2010 Bookmark and Share

The U.S. and Brazil reached an interim settlement this week just a day before more than $500 million in import tariffs on U.S. products – including 30 percent tariffs on milling wheat – were slated to go into effect.

United States Trade Representative (USTR) Ron Kirk and Secretary of Agriculture Tom Vilsack announced Tuesday in a press release that the United States and Brazil have agreed upon “a clear path forward” to negotiate a settlement in a long-running World Trade Organization (WTO) case involving U.S. cotton and export credit programs.

Brazil originally brought the case in 2002 and in August 2009 was given authorization to impose retaliation measures worth almost $830 million. Last month, Brazil announced a first set of countermeasures it would impose on April 7 worth more than $500 million and hitting more than 100 exported goods, including wheat.

On April 1, Deputy USTR Miriam Sapiro and USDA Undersecretary for Farm and Foreign Agricultural Services Jim Miller met with Brazilian officials, producing the agreement announced this week.

In exchange for Brazil’s agreement not to impose countermeasures on Wednesday, the U.S. agreed to establish a fund of approximately $147.3 million per year for technical assistance and capacity building in Brazil until passage of the next farm bill or a mutually agreed solution is reached, whichever is sooner.

The U.S. also agreed to make changes to the GSM-102 program and publish a proposed rule relating to beef trade; hours after the agreement was announced, USDA said it would cancel all unutilized balances of the GSM-102 program made in FY2010, effective April 9, and would seek to issue new program announcements under a new guarantee fee schedule.

Vilsack said in the press release announcing the settlement that it “respects our Farm Bill process and the role of Congress in shaping our commodity programs.” Key Members of Congress and commodity groups have been concerned that the effort to negotiate an agreement that would forestall sanctions would commit the U.S. to open the 2008 Farm Bill before it expires in 2012, which Congress is unlikely to do.

House Agriculture Committee Chairman Collin Peterson (D-Minn.) and Ranking Member Frank Lucas (R-Okla.) said in a joint statement that they, “understand that a delay in countermeasures is not a final resolution of the dispute, and we will work closely with officials in USDA and USTR as their discussions on these programs continue.”

Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) and Ranking Member Saxby Chambliss (R-Ga.), said in a statement that they were “encouraged that both sides have agreed upon a framework for dialogue and a process to further discussion” but that Congress is ultimately responsible for any changes to the 2008 Farm Bill programs.

NAWG and U.S. Wheat Associates released a statement Wednesday on the announcement, saying:

“The U.S. wheat industry is very pleased that the U.S. and Brazilian governments have been able to identify a process for negotiating a settlement in the World Trade Organization dispute between our two countries. Brazil recently won the right to impose countermeasures against U.S. trade and planned to increase U.S. wheat tariffs to 30 percent from 10 percent today as part of its response. Yesterday’s agreement ensures that U.S. producers will remain competitive in one of the world’s largest wheat markets.

“The demonstrated willingness of the Brazil and U.S. governments to begin in good faith to negotiate a settlement is very encouraging. In particular we commend the efforts of Under Secretary Jim Miller, Ambassador Miriam Sapiro and Ambassador Isi Siddiqui in achieving this outcome, and we look forward to working with them and Members of Congress as discussions on this issue continue.”

NAWG and U.S. Wheat will continue to monitor the discussion and negotiations moving forward, particularly with respect to any potential changes to future farm policy and export credit programs that may be under consideration. In particular, the goals of the GSM-102 export credit guarantee program remain very important for the wheat industry, with $693.5 million in GSM-102 export credit guarantees used for wheat exports around the world in the 2008-2009 fiscal year, representing 12 percent of sales.

Brazil is routinely one of the top three wheat importers in the world. Over the past 10 years, U.S. wheat market share to Brazil has ranged from nearly none to about 12 percent. Brazil’s major supplier is Argentina, and increasing duties on U.S. wheat imports would have effectively shut the U.S. out of a large and important wheat market in which the U.S. is already at a comparable disadvantage.