Brazil Threatens I/P Sanctions over U.S. Cotton Subsidies

According to Bridges Weekly Trade News Digest, on October 6, 2005, Brazil asked the WTO Dispute Settlement Body (DSB) to suspend its treaty obligations on services and intellectual property rights in order to retaliate against the U.S. for failure to comply with a March WTO ruling on cotton subsidies. U.S. Deputy Secretary of State Robert Zoellick, in Brazil for a goodwill visit that same day, warned that the country ought to think carefully about requesting sanctions, suggesting that they could incite a trade war. According to Joel Brinkley writing for the The New York Times on October 7, the former U.S. Trade Representative "suggested that Washington could choose to eliminate trade preferences that allowed Brazil to ship more than $2 billion in goods to the United States duty free, adding, 'When one side retaliates, who knows what the other side will do?'" Noting that US legislation has been proposed to fix the problem, Zoellnick added "In my view, a step towards retaliation at this point would actually aggravate the situation."

Under WTO rules, members may be granted permission for so-called "cross-retaliation" when it is not "practicable" or "effective" for them to impose penalties under the violated agreement. Whether this is indeed the case depends on the likely effects of retaliating against the same sector in the same agreement -- for example, in this case, retaliating under the General Agreement on Tariffs and Trade, or the GATT, which governs trade in agricultural and non-agricultural products. If granted permission to cross-retaliate, Brazil would, for example, have the right to suspend the effects of US patents, which would clear the way for companies in Brazil to make generic copies of medicines.

If Brazil receives the right to cross-retaliate and actually does so, it would become the first country in WTO history to impose such measures. In 2000, a WTO dispute arbitrator granted Ecuador permission to impose cross-retaliatory sanctions worth USD 200 million against the EU for the latter's failure to comply with a WTO ruling against its banana import regime. However, Ecuador chose not to avail itself of this right to retaliate.

In a meeting of the WTO Trade Negotiations Committee (TNC) in Geneva on October 13, WTO Director General Pascal Lamy indicated that his organization may be looking closer at intellectual property issues. “We must also ensure that the issues of implementation … and TRIPS and public health are taken up in an appropriate way in the lead-up to [the December ministerial meeting in] Hong Kong,” Lamy reportedly said. “And we must ensure that we build the necessary base for an ‘aid for trade’ package for the end of the round.”

More about "I/P Drama in Brazil" is available from the Promote the Progress Blog here.