The Article 22.6 Arbitration decision in the U.S. - Cotton case was issued today. Or rather, the decisions, plural. There is one decision related to actionable subsidies and one decision related to prohibited subsidies.
So what do they say? Well, I'm still trying to finish up the impossibly long China - Publications panel report from a couple weeks ago, so I can only take a quick glance right now. One key issue is "cross-retaliation" under the TRIPS Agreement. This has been authorized in two previous cases (EC - Bananas (Ecuador) and U.S. - Gambling), but the complaining parties in those cases did not -- well, have not yet anyway -- actually impose such retaliation. The way Brazil is talking about the case to the media, it seems like this might be the case where it happens. If it does, it will be very interesting to see how such retaliation works in practice. The decisions appear to complicate the issue a bit, though, by allowing TRIPS retaliation only under certain conditions. From para. 6.5(b) of the prohibited subsidies decision:
In the event that the total level of countermeasures that Brazil would be entitled to in a given year should increase to a level that would exceed the threshold described in paragraph 5.201, updated to account for the change in Brazil's total imports from the United States, then, Brazil would also be entitled to seek to suspend certain obligations under the TRIPS Agreement and/or the GATS, as identified in footnote 468, with respect to any amount of permissible countermeasures applied in excess of that figure.
It may take a little while to sort out all the nuances of the decisions.
In terms of the amounts involved, the prohibited subsidies decision says:
Brazil may request authorization from the DSB to suspend concessions or other obligations under the Agreements on trade in goods in Annex 1A, at a level not to exceed the value of US$147.4 million for FY 2006, or, for subsequent years, an annual amount to be determined by applying the methodology described in Annex 4.
The actionable subsidies decisions says:
Brazil may request authorization from the DSB to suspend concessions or other obligations under the Agreements on trade in goods in Annex 1A, at a level not to exceed the value of US$147.3 million annually.
That's from para. 6.5(a) of both decisions. So, around $295 million in trade sanctions (with some variation in subsequent years). Not an insignificant amount, but is it enough to be effective?
ADDED: According to Reuters, Brazil seems to suggest that the figure is actually quite a bit higher:
Brazil said the ruling would entitle it to about $800 million in sanctions against the United States this year, including $340 million of "cross-retaliation" against intellectual property or services.
MORE: I'm assuming Brazil's higher number comes from the calculation for the most recent year under the methodology established by the arbitrators for future years (after 2006), in relation to the prohibited subsidies decision. However, I have not come across anything yet to confirm this.
