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Article
The Cotton and Sugar Subsidies Decisions: WTO’s Dispute Settlement System Rebalances the Agreement on Agriculture
Drake Journal of Agricultural Law (2005)
  • Stephen J Powell, University of Florida
  • Andrew Schmitz, University of Florida
Abstract

Acting on a complaint by Brazil, a WTO dispute settlement panel ruled September 8, 2004, that a variety of support programs for upland cotton exceeded reduction commitments made by the United States when it signed the 1995 WTO Agriculture Agreement and were thus not immune from challenge under the WTO Subsidies Agreement, with which the Panel then found these programs inconsistent.

The Panel's conclusions, if upheld by the WTO's Appellate Body, will have significant impact on agricultural policies for specialty and program crops of the United States, Europe, and Japan. This paper analyzes the decision, notable as the first to find that domestic farm support caused trade injury, both from a legal and an economic standpoint with particular reference to its impact on specialty agriculture.

We conclude that it is difficult to argue with the Panel's finding that price support programs tied to world prices have market insulating effects on farmers. Also, economic models show that U.S. cotton policy has a negative impact on world cotton prices. However, data do not necessarily substantiate the Panel's pivotal "but for" test that world cotton prices would not have been significantly price suppressed in the absence of the U.S. price support programs. First, there is the question whether the price suppressing effect of U.S. cotton policy is significant, and second, in the absence of U.S. cotton policy, would world cotton prices be suppressed. The answer to the latter question can be discussed only in the context of other countries' cotton policies, which also suppress world cotton prices, and would continue to do so even without the U.S. cotton program.

The Panel's lack of quantitative analysis, reflected in its reliance on the finding that "we are certainly not, by any means, looking at an insignificant or unimportant world price phenomenon," reveals subjective conclusions that cannot serve as a road map for governments that wish to avoid a similar fate.

Keywords
  • WTO,
  • cotton,
  • sugar,
  • subsidies,
  • export subsidies,
  • Agreement on Agriculture,
  • domestic support,
  • agriculture negotiations
Publication Date
Summer July 15, 2005
Citation Information
Stephen J Powell and Andrew Schmitz. "The Cotton and Sugar Subsidies Decisions: WTO’s Dispute Settlement System Rebalances the Agreement on Agriculture" Drake Journal of Agricultural Law Vol. 10 Iss. 2 (2005)
Available at: http://works.bepress.com/stephen_powell/11/