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Wide Range of U.S. Exports to Brazil Face Increased Duties as Cotton Retaliation Begins

Peggy A. Clarke
Edward J. Farrell
Frederick L. Ikenson
Blank Rome LLP - Washington Office

March 26, 2010

Previously published on March 11, 2010

Brazil released its final list of U.S.-origin goods to be subject to increased import duties. The increased duties will go into effect within 30 days, unless the dispute between Brazil and the United States over U.S. cotton subsidies is resolved before then. The retaliation list includes a wide variety of goods and differing levels of import duties, with cotton and articles made of cotton bearing the highest duties--100%. Other increased duties range from 12% to 60% and cover , among other goods, certain textile products, beauty preparations, medicaments, automobiles, and agricultural products. In all, Brazil calculates that it will realize $591 million this year from these increased duties. In addition to the increased duties on goods imports, Brazil announced its intention to apply the remaining $238 million in authorized retaliation in the intellectual property and services sectors. Brazil has not, however, announced the specific action it will take in those sectors.

The increased duties and the amount of retaliation were authorized in November 2009, after WTO arbitration found that the United States had failed to bring subsidies on upland cotton into conformity with the WTO Agreement on Subsidies and Countervailing Measures (“ASCM”) and authorized the use of countermeasures. In February, Brazil issued a list of potential retaliation targets. Brazil’s tariff increases were not as high as many would have expected. Only cotton and articles of cotton faced 100% duties. Nevertheless, because only U.S.-origin goods are subject to these increased duties, it will have a negative impact on U.S. goods exported to Brazil.

The full impact of retaliation will reach beyond the increased duties, however, if settlement of the dispute is not reached soon. Brazil has been authorized to suspend intellectual property rights for U.S. companies and/or to suspend certain obligations Brazil has undertaken with respect to services. Brazil has indicated that it intends to suspend intellectual property and/or services concessions as part of its overall retaliation package but has not yet indicated exactly what actions it will take. That information should be available soon.

These actions reflect the culmination of an 8-year dispute with the United States over the granting of subsidies to upland cotton farming and thereby causing serious prejudice to Brazil’s interests. The original Appellate Body decision finding that the U.S. subsidies violated the United States’ commitments under the WTO was adopted in March 2005. At that time, the WTO panel and Appellate Body instructed the United States to withdraw the subsidies found to constitute prohibited export and import substitution subsidies and to remove the harmful effects from other subsidies.

Although the United States passed legislation that revised some of the programs found to provide subsidies, Brazil disputed that such action had brought the United States into conformity. In 2008 Brazil went back to the WTO, requested, and received a finding that the United States had failed to bring its programs into conformity with its treaty obligations. This finding paved the way for the current retaliation.

The United States can still negotiate a settlement with Brazil to prevent the retaliation or to end it once it goes into effect. United States Trade Representative Ron Kirk has also indicated that he would prefer a negotiated settlement to avoid retaliation but has not indicated what such a settlement might look like. Last week Secretary of State Hillary Clinton indicated that the U.S. would be making a settlement proposal this week. On March 9, 2010, however, Senators Lincoln and Chambliss said that they had been reassured that no such proposal was being delivered.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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