To begin with, it should be noted that dispute settlement is one of the main aspects of the multilateral trading system; and the World Trading Organization makes unique contribution to the stability and development of the global economy by solving disputes. Obviously, without a means of settling disputes, the system, which is based on the specific rules, would be less effective because these rules could not be enforced. Therefore, the WTO’s procedure underscores the rule of global law, and it makes the world trading system more predictable and secure. The aim for the system is to be based on clearly defined rules, with special timetables for completing a case. Thus, any member of the WTO could file a complaint against another member if there is a suspicion of dumping, unfairly subsidizing, or violating some trade agreement. In such occasion, if the WTO decides the case is valid, it can levy sanctions on the offending country (Nelson, 2013). The Dispute Settlement Body, consisting of all WTO members, administers dispute settlement procedures. It provides specific periods for the dispute settlement process and establishes special appeals system to standardize the common interpretation of concrete clauses of the agreements. It also provides the automatic establishment of a panel structure and automatic adoption of a panel report in order to prevent nations from stopping action by ignoring complaints.
The basic stages of dispute resolution include good offices, conciliation consultation, Appellate Body review, a panel phase, and remedies. It should be noted that a procedure for settling trade disputes existed under the old GATT, but rulings were easier to block, it had no fixed timetables, and many cases dragged on for a long time inconclusively. Thus, the Uruguay Round agreement, which was specially made to solve these problems, introduced a more optimized and structured process with more clearly defined stages of debates in the procedure. Furthermore, it introduced greater discipline for the length of time to settle a case, with flexible deadlines established in various stages of the procedure (Stolpestad, 2011). It should be highlighted that the Uruguay Round agreement also made it absolutely impossible for some country losing a possibility to block the adoption of the ruling. A close look on the data indicates that under the previous GATT procedure, trade rulings could only be adopted by global consensus, meaning that a single country opinion could block the ruling. In modern system, rulings are automatically adopted by all countries, unless there is a consensus to reject this ruling.
Subsidy can be defined as a benefit given by the government to individuals or groups, usually in the form of tax reduction or cash payment (Stolpestad, 2011). The subsidy is often considered to be in the interest of the public and is often given to remove some type of burden. The data yielded by this study provides convincing evidence that there are many forms of various subsidies given out by the government. They usually include housing loans, student loans, welfare payments, and farm subsidies. For instance, if a domestic industry, such as farming, is actually struggling to survive in an extremely competitive international industry with quite low prices, a government can possibly give cash subsidies to these farms so that they would sell at the low market price with achieving their financial gain.
It should be mentioned that the SCM Agreement prohibits two categories of subsidies. The first category consists of export subsidies. A detailed list of export subsidies is given in the SCM Agreement. The second category consists of local content subsidies, which show the use of domestic over imported goods. These two categories of subsidies are specially prohibited because they are designed to directly affect the quality of trade and thus are most likely to have adverse positive effects on the interests of other members (Stolpestad, 2011).
The World Trade Organization dispute between the U.S. and Brazil on cotton trade was initiated by Brazil in 2002. The problem was that Brazil, being a major cotton exporter, argued that the U.S. subsidies on upland cotton were absolutely trade-distorting, suppressing cotton prices on the world market, and in serious violation of WTO rules. As the result, Brazil argued that the United States had failed to abide by its governmental commitments in the Uruguay Round Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures (SCM). Thus, on September 8, 2004, a World Trade Organization dispute settlement panel ruled against the U.S. on several key issues in case. Once initiated, this dispute settlement case follows various events designed to produce some clear resolution of the dispute within a twelve or fifteen month time frame. Evidently,this case has attracted a huge attention among media and scholars, especially for the reason that Brazil threatened with cross-retaliation, a retaliation tool that has been never used before.
Brazil received WTO’s approval to impose 829$ million in special retaliatory sanctions against the U.S., including authorization to revoke intellectual property rights protection for certain U.S. products and services. It was effective, because it was the first step towards economic pressure on American traders. Furthermore, it brought positive effect in 2010 (Nelson, 2013).
In April 2010, U.S. trade officials were ready to have a productive dialogue with Brazil, thus, in order to find a compromise, Roberto Azevedo, Brazil’s Ambassador to the WTO, proposed to imply subsidies from U.S. economy. His approach was effective, because Brazilian farmers felt protected and competitive at the global market. However, observing the possibilities and problems that may appear at the long run, it would be better to make an optimization of the Brazilian economics in order to find some new ways of pressure on American traders, especially in conditions of free market. It would be better for Brazil to constantly change their market strategy in their one of the most important branches of economy. Without any doubts, it would be better if the cotton industry would work without any benefits and subsidies form external or internal market players.
It should be concluded that this case demonstrates how Brazil, despite being a far smaller economy than U.S., could compete with such a big player on the world market. It is extremely important, because big market players always try to show that they cannot lose any battle at the international area, while it is just the half of the truth. Furthermore, the outcome of the case suggests that the method of cross-retaliation can bring the intended effect in competitive practice. It seems fair to argue that cross-retaliation is an instrument, which can be a significant factor for strengthening the relative power of different developing countries in the WTO. However, how well the instruments of this method work, is dependent on several factors besides the authorization to cross-retaliate.
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Nelson, Roy. (2013).Brazil vs. the U.S. at the WTO: The U.S.-Brazil Cotton Subsidy Dispute. Thunderbird School of Global Management. 1-14.
Stolpestad, Ingrid. (2011). Challenging U.S. cotton subsidies. University of Oslo. Retrieved April 22, 2014 from https://www.duo.uio.no/bitstream/handle/10852/13138/Stolpestad-Master.pdf?sequence=2