[A2k] Wall Street Journal: U.S. Loses Ruling on Cotton Payouts

[Thiru Balasubramaniam]

<SNIP>

But the ruling opened an important door to retaliatory measures that,
under certain circumstances, could punish American pharmaceuticals
companies and other owners of intellectual property.

The WTO panel said Brazil could target other American goods for
retaliation if U.S. cotton supports rise significantly beyond current
levels for its 25,000 farmers. Brazil, which has a robust
pharmaceuticals and generic-drug industry, has targeted patented U.S.
drugs for potential retaliation. That means the country could allow
domestic drug makers to manufacture copies of U.S. pharmaceuticals
that are still under patent protection.

The issue of "cross retaliation" in global trade disputes is
contentious. Many smaller countries need U.S. capital goods in order
to grow, leaving them without effective tools to fight back with when
the WTO finds that U.S. trade policy has injured the smaller nations.

<SNIP>


Some experts said the possibility of retaliating against the U.S. by
flouting U.S. patents on medicines, films and other intellectual
property gives Brazil an important new weapon.



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     * AMERICAS NEWS
     * SEPTEMBER 1, 2009



U.S. Loses Ruling on Cotton Payouts


By PETER FRITSCH and JOHN LYONS

A ruling against the U.S. in a long-running fight with Brazil over
American payouts to cotton growers sets an important precedent for
developing nations concerned by what they see as excessive U.S.
support for farmers.

A World Trade Organization arbitration panel ruled Monday that Brazil
is entitled to $295 million upfront, and nearly $150 million a year,
for the U.S. failure to eliminate subsidies to the cotton industry.
The annual penalties are far below the $2.5 billion Brazil had sought.

In a statement, Brazil said that these damage figures were calculated
using 2006 trade figures, and that it will seek a bigger payout of
around $800 million to reflect current trade flows.

"Brazil hopes that the United States will bring itself promptly and
effectively into compliance with the WTO rulings, so that the
imposition of the countermeasures authorized today is not necessary,"
Brazil's Foreign Ministry said in a statement.

But the ruling opened an important door to retaliatory measures that,
under certain circumstances, could punish American pharmaceuticals
companies and other owners of intellectual property.

The WTO panel said Brazil could target other American goods for
retaliation if U.S. cotton supports rise significantly beyond current
levels for its 25,000 farmers. Brazil, which has a robust
pharmaceuticals and generic-drug industry, has targeted patented U.S.
drugs for potential retaliation. That means the country could allow
domestic drug makers to manufacture copies of U.S. pharmaceuticals
that are still under patent protection.

The issue of "cross retaliation" in global trade disputes is
contentious. Many smaller countries need U.S. capital goods in order
to grow, leaving them without effective tools to fight back with when
the WTO finds that U.S. trade policy has injured the smaller nations.

The WTO cotton ruling for Brazil is, therefore, "the big banana in
terms of smaller countries having effective means of retaliation,"
said Gary Hufbauer, a trade expert at the Peterson Institute for
International Economics in Washington. "This will cause the
intellectual-property community a few shakes and quivers."

Small nations such as Ecuador and Antigua and Barbuda have sought the
right to retaliate against the U.S. over trade in bananas and Internet
gambling, respectively. But they don't have the wherewithal to make
life uncomfortable for American companies -- at least not without
hurting their own importers at the same time.

Brazil, the world's biggest exporter of coffee, sugar, beef, chicken
and iron ore, imports $18 billion a year of American goods and has
long complained that many of its products face unfair obstacles to the
U.S. market. It still needs most of those U.S. goods, but some of its
sectors -- particularly pharmaceuticals -- could profit from import
tariffs.

Some experts said the possibility of retaliating against the U.S. by
flouting U.S. patents on medicines, films and other intellectual
property gives Brazil an important new weapon.

The U.S. sees closer ties with Brazil as a way to improve its broader
standing in the region, where governments in Venezuela, Argentina,
Ecuador and Bolivia have become opponents to U.S. influence.

Monday's ruling has another, broader political aspect: Brazil is an
important player in sputtering global trade talks. Brazilian Foreign
Minister Celso Amorim grabbed a starring role in the WTO's Doha Round
of trade talks by orchestrating a coalition of nations that blocked a
global trade deal proposed by the U.S. and Europe. Ministers will
gather in New Delhi this week to discuss ways to kick-start those talks.

The National Cotton Council, of Memphis, Tenn., said the dispute was
outdated, arguing U.S. cotton production has dropped 45% since 2005
while Brazil, China and India have increased their exports.

In response to a series of international legal defeats on cotton, the
U.S. in 2006 scrapped certain export credits and in 2006 repealed a
program that gave payments to companies that bought higher-priced
American cotton. But the 2008 farm bill left other cotton supports
intact.

Write to Peter Fritsch at peter.fritsch@wsj.com and John Lyons at john.lyons@wsj.com

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


Tel: +41 22 791 6727
Mobile: +41 76 508 0997