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U.S./Brazil develop framework agreement in WTO cotton dispute

U.S. and Brazil trade negotiators have found common ground on an agreement that suspends the threat of Brazilian trade sanctions.

This was good news for the cotton industry, which will have the time to deal with the issue within context of overall U.S. farm policy, and for other U.S. industries that faced the possibility of trade sanctions being imposed by Brazil.

Officials at the National Cotton Council (NCC) say both sides concur that a mutually agreed outcome in the next farm bill would provide the best opportunity to create a long-term settlement of the dispute.

"The framework agreement between the U.S. and Brazil reflects a significant effort by the Administration to forestall the imposition of damaging retaliatory trade action by Brazil while preserving the normal policy process in the United States," NCC Chairman Eddie Smith said.

"It was a difficult agreement to negotiate, and we commend the Administration for its determination to find common ground with Brazil."

Smith pointed out in a conference call with cotton industry groups June 23 that the framework agreement is not a final solution to the nearly decade long Brazil-U.S. trade dispute. In fact, both the United States and Brazil characterize the agreement as providing a process and actions to occur during a "transition" period that would end with enactment of the 2012 farm bill.

As long as the Framework is in place, Brazil agrees not to impose trade sanctions. However, Brazil reserved its rights to terminate the framework agreement at any time.

The Framework also includes plans for quarterly meetings between the United States and Brazil to discuss progress in the 2012 farm bill debate.

Smith explained to the industry groups that when and if a final resolution is reached it would only occur when the Brazilians are satisfied that the United States has done enough to eliminate or modify U.S. support programs they believe harm the competitive position of the Brazilian cotton industry.

A Brazilian government press release indicated that the basis for the discussion on U.S. cotton policy would be an annual limit on trade distorting cotton subsidies that would be "significantly lower" than the average for the years 1999-2005 (the years covered by the WTO dispute).

The Framework also provides benchmarks for changes to the U.S. export credit guarantee program that would affect all participating U.S. commodities.

According to the NCC, Brazil also said the export credit guarantee changes would focus on a reduction in the length of the guarantees (maximum length of 16 months) along with potential increases in risk- based premiums to be charged. The increase in premiums would be tied to the overall level of use of the export credit guarantee program.

"We will work with Congress and the Administration on the 2012 farm bill," Smith stated, "in order to develop cotton policy that will continue to provide the safety net needed by U.S. farmers while helping assure our trading partners that U.S. cotton programs do not cause unfair trade distortions in the world cotton market."

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