Search Penny Hill Press

Tuesday, February 9, 2010

Brazil’s and Canada’s WTO Cases Against U.S. Agricultural Direct Payments

Randy Schnepf
Specialist in Agricultural Policy

In 2007, Brazil and Canada, independently of each other, requested consultations with the United States under the auspices of the World Trade Organization's (WTO's) Dispute Settlement process concerning similar grievances regarding U.S. domestic agricultural support programs and the U.S. export credit guarantee program. After consultations failed to resolve their concerns, both countries (again acting independently) requested the establishment of a WTO panel to rule on their complaints. The WTO's Dispute Settlement Body, on December 17, 2007, established a single panel to consider both cases. In late April 2008, Brazil and Canada informally agreed to postpone proceeding with their joint World Trade Organization (WTO) dispute settlement case challenging certain U.S. agricultural subsidies. At the time of the postponement, the three parties involved in the dispute had been unable to agree on panel membership. 

The postponement was thought to be provisional based on success in achieving further disciplines on domestic support in the current Doha Round of WTO trade negotiations. However, the Doha Round negotiations failed to complete an agreement in 2009. As of early 2010 there are no prospects for revival of Doha Round negotiations. Nor have Brazil and Canada given any indication that they will revive their pursuit of their joint case. It is not clear how long the postponement will persist. If resumed, the first order of business will be the formation of a panel. 

The joint case combines two separate but similar cases: DS357, brought by Canada, and DS365, brought by Brazil. Both cases make two charges against U.S. farm programs—first, that the United States has exceeded its annual WTO commitment levels for total aggregate measurement of support (AMS) for agriculture in each of the years 1999, 2000, 2001, 2002, 2004, and 2005, and second, that the U.S. export credit guarantee program for agricultural commodities operates as a WTO-illegal export subsidy. Both charges stem, in large part, from a previous negative ruling against U.S. farm programs in a case (DS267) brought by Brazil against the U.S. cotton program. In that case, a WTO panel ruled (the ruling subsequently was upheld by a WTO Appellate Body), first, that direct payments made under U.S. farm programs do not qualify for green box exemption status because of a restriction prohibiting the planting of fruits, vegetables, or wild rice on payment acres; and second, that the U.S. export credit guarantee program operates as a prohibited export subsidy program because the financial benefits returned by these programs failed to cover their long-run operating costs. As a result of the ruling, U.S. export credit guarantees became subject to previously scheduled export subsidy commitments. For more information, see CRS Report RL32571, Brazil's WTO Case Against the U.S. Cotton Program, by Randy Schnepf. 

Canada and Brazil claim that, since they fail to qualify for inclusion in the green box, U.S. direct payments should be added to its AMS when calculating total domestic support. In addition, they also charge that the United States has improperly notified several of its farm support programs as exempt from the AMS limit, while several other programs were improperly excluded from U.S. notifications. Canada and Brazil claim that when all of the outlays from these allegedly misnotified programs are included, then the U.S. AMS total exceeds its WTO commitment level. 

Should a panel be formed and eventually rule on this case, any changes in U.S. farm policy needed to comply with a WTO ruling against the United States would likely involve action by Congress to produce new legislation.This report provides background and details, as well as the current status of the two WTO dispute settlement cases. In addition, it discusses the role of Congress in responding to developments.

Date of Report: January 27, 2010
Number of Pages: 16
Order Number: RL34351
Price: $29.95

Document available electronically as a pdf file or in paper form.
To order, e-mail or call us at 301-253-0881.