Comments of the united states on the answers of brazil to further questions from the panel to the parties following the second panel meeting
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- 6. The US Critique of Brazil’s Allocation Methodology Is Baseless
- Cotton-to-Cotton Methodology (Table 1.5 of Annex A.1)
- Brazil’s Methodology (Table 2.21 of Annex A.2)
- 7. The US Critique of Brazil’s Application of the Improper Annex IV Methodology is Baseless
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54. Brazil notes that the results from each of the four methodologies applied to the revised US summary data suffer from shortcomings due to the incomplete and non-farm-specific data. Brazil would have to re-calculate all of these numbers if the United States produces the actual data on 3 March 2004. As it stands, the data currently available undercounts the support under each of the methodologies (except the cotton-to-cotton), because no information on soybean market loss assistance payments and peanut direct and counter-cyclical payments to farms producing upland cotton was provided by the United States. Further, due to the manner in which the US data is provided, distortions from the aggregation of farm-specific data possibly over- or under-state the results, as discussed in Section 6 below. Therefore, Brazil remains of the view that in the absence of complete farm-specific aggregated data, the Panel should rely on Brazil’s 14/16th methodology. 55. While Brazil does not believe that the Panel should rely on either the two Annex IV-type methodologies, or even the “cotton-to-cotton” methodology, it is noteworthy that all four of the methodologies show that the United States does not enjoy peace clause protection.746 The table below shows the results of the comparison of US support to upland cotton decided in MY 1992 with US support to upland cotton provided in MY 2002. Under any methodology, the US support to upland cotton in MY 2002 exceeds the support decided in MY 1992 considerably – by at least $464 million. Budgetary Outlays For Upland Cotton MY 1992, 2002747
(1) Cotton-to-Cotton Methodology (2) Brazil’s Methodology (3) Modified Annex IV Methodology (4) US Annex IV Methodology (5) Brazil’s 14/16th Methodology 56. Brazil presents the tabulations for MY 1999-2001 in Annex B. These data show that the United States also exceeds the MY 1992 limits under each of the four methodologies (except for methodology (4) in MY 2000) and under Brazil’s 14/16th methodology.749 6. The US Critique of Brazil’s Allocation Methodology Is Baseless 57. Brazil recalls that its methodology allocates support paid for upland cotton base that is “planted to” upland cotton. It further allocates proportionally any other contract crop base payments that are not allocated to plantings of the respective contract payments crop.750 Brazil’s methodology, as well as the “cotton-to-cotton” methodology, generates results that are very close to Brazil’s 14/16th methodology. This is not surprising since the 14/16th methodology is based on the assumption of very high percentages of upland cotton “planted on” upland cotton base acreage. All three of these methodologies reflect the economic reality in MY 1999-2002 that each allocated contract dollar received by upland cotton producers over a four-year period was needed to cover the costs of producing upland cotton. The fact that the vast majority of upland cotton was actually planted on upland cotton base is further confirmation of the reasonableness of these three methodologies. 58. Much of the US criticism of Brazil’s methodology is tainted by the wrong assumption that contract payments provide “decoupled income support”.751 For example, the United States states, at paragraph 38 of its 11 February 2004 Comments, that “fundamentally, Brazil’s approach is in error because it assumes that there is a tie between the decoupled payments and current production”. The United States is correct – Brazil’s methodologies do make that assumption, for the very good reason that that assumption reflects the economic cost realities and the cotton-to-cotton planting on the ground, discussed in Section 3 supra. Similarly, the United States claims, at paragraph 37 of its comments, that “decoupled payments by their nature provide income support not tied to the production or sale of any given commodity”. But this ignores the vast weight of the evidence, which demonstrates the link between upland cotton production and upland cotton base acre payments (and other payments) in MY 1999-2002. 59. The United States raises a number of hypothetical “problems” with Brazil’s methodology.752 But the extent of any such problems, if any, can only be assessed by examining the actual farm-specific data. It is not credible for the United States to refuse to produce key farm-specific data and then speculate about potential problems for individual farms. Upon receipt of the US response to the Panel’s request, Brazil looks forward to providing the Panel with such an analysis. 60. A principle complaint of the United States is that Brazil’s allocation of non-upland cotton contract payments results in differential subsidization rates on different acres planted to upland cotton.753 Similarly, the United States criticizes Brazil for potentially allocating more than one non-upland cotton base acre payments to one planted acre of upland cotton.754 Both of these alleged problems with the allocation of non-upland cotton contract payments do not exist for MY 2002. This is because Brazil’s methodology allocates for each planted acres of upland cotton only one upland cotton base acre payment.755 In MY 2002, the vast majority of contract payments allocated as support to upland cotton are upland cotton contract payments. In MY 2002, 99.1 per cent of direct payments756 and 99.8 per cent of the counter-cyclical payments757 received by upland cotton producers were upland cotton contract payments. This is because the vast majority of upland cotton is grown on farms holding upland cotton base, which in MY 2002 exceeds acreage planted to upland cotton. Farms growing upland cotton but not holding upland cotton base accounted for only 0.9 and 0.2 per cent of total allocated direct and counter-cyclical payments respectively. Since the two main US criticisms affect only the allocation of non-upland cotton contract payments, they affect, at most, 0.9 per cent of the payments at issue for MY 2002.758 61. Brazil notes that the “cotton-to-cotton” methodology, discussed in Section 5, does not allocate any non-upland cotton base payments. Therefore, none of the US criticisms, at paragraphs 37-42 of its 11 February 2004 Comments, affects the “cotton-to-cotton” results for MY 1999-2002. Thus, these results reflect the worst case scenario of any alleged over-counting in Brazil’s methodology. Comparing the results of both methodologies, reproduced in Section 5 and Annex B demonstrates that even under the “cotton-to-cotton” methodology the Unites States surpasses its peace clause limits. The tables below reproduce the results of both methodologies: Cotton-to-Cotton Methodology (Table 1.5 of Annex A.1)
Brazil’s Methodology (Table 2.21 of Annex A.2)
62. As the Panel can readily see, the differences in the results of both methodologies are minor (with $118 million in MY 1999, $114 million in MY 2000, $95.5 million in MY 2001, and $5.7 million in MY 2002). 63. In addressing the specific US criticism affecting MY 1999-2001, Brazil notes that its methodology involves analysing the planting patterns and base acres of individual farms. Each farm is unique. Some farms will have greater base acres than planted acres and vice versa. Some farms will plant different crops than they used to establish their base acres, and, as in the case of most upland cotton farms, they will continue to plant upland cotton holding upland cotton base acres. Brazil’s methodology accounts for all contract payments as support to contract crops planted on farms holding base. This means that some farms will have “extra” base acres payments that will need to be allocated over fewer planted acres of contract payments crops or vice versa. This reflects economic realities for farms that have many different combinations of base and planted acres. 64. The US comments, at paragraph 37 of its 11 February 2004 Comments, raise theoretical “arbitrary” attribution problems relating to “excess cotton acreage” or “excess” base acreage situations for a hypothetical farm. But the purpose of any methodology is not to determine the “subsidization” rate of a particular farm, but rather to assess, in the aggregate, the amount of payments. Of course, different farms will have different crop subsidization rates given the inherently unique base acreage and planting combinations. Therefore, Brazil’s methodology, which is based on examining individual farm data, may result, in certain cases, in different crop subsidization rates for different farms. But this is neither remarkable nor illogical, as the United States claims, but rather reflects economic reality. 65. The United States further complains that Brazil allocates all “excess” contract payments in MY 1999-2000 and almost all “excess” contract payments in MY 2001 to upland cotton.761 However, the data shows that in those three marketing years, all contract payment crops (except upland cotton) were planted to a degree that fell short of the base acreage for these crops. Thus, the simple fact that upland cotton farms during MY 1999-2001 increased their amount of upland cotton plantings at the expense of other contract payment crops suggests that some of the payments for these non-upland cotton base acres were devoted to supporting upland cotton production. This is reflected in Brazil’s 28 January 2004 calculations (as well as in its updated calculations in Annex A.2). Brazil’s calculations, therefore, reflect the reality of upland cotton production in those marketing years – production on upland cotton farms shifted to upland cotton and away from other contract payment crops. Brazil notes that no such “excess” upland cotton production exists in MY 2002. This appears to be – at the very least in part – a direct consequence of the base update aligning contract payments base with production trends during MY 1998-2001.762 The re-linkage of production meant that more current upland cotton production takes place on base acreage than during MY 1999-2001. 66. Finally, the United States asserts that the aggregation problems inherent in the US summary data will necessarily increase the amount of payments allocated to upland cotton.763 This criticism is again an ironic assertion by a party that has refused to provide the very data that would answer this criticism. Whether the aggregation problem leads to an upward or downward error in estimating the amount of support to upland cotton is a factual question that cannot be answered in the abstract, as suggested by the United States.764 Indeed, the effect of the aggregation problem is that upland cotton contract payments on farms that have “excess” upland cotton base are treated as upland cotton payments to farms that have “excess” upland cotton plantings.765 Whether such a treatment leads to over- or under-counting depends entirely on what the amount of support allocated to the “excess” planted upland cotton acres would be, which can only be derived with using farm-specific data. Only if it is lower then the support for an upland cotton base acre (allocated due to the aggregation effect) would the aggregation problem lead to over-counting. And this is a factual, not a theoretical question. The amount of support allocated to the “excess” acres planted to upland cotton could rank from zero (no contract payments available for allocation on that farm) to an amount that exceeds the upland cotton per-acre payment rate (for instance, rice base or payments for more than one base acre). Again, it bears repeating, that there will be no “aggregation problems” if the United States produces complete farm-specific data on 3 March 2004. 67. In sum, Brazil maintains that, in view of the de facto tied nature of the US contract payments at issue, Brazil’s methodology is a reasonable means of calculating the support to upland cotton. As for some of the US criticisms that might affect the results (except for MY 2002), Brazil will control for these effects once the United States provides aggregate data in the manner requested by the Panel. Yet, Brazil is of the firm view that none of the US criticisms will meaningfully affect its results. 7. The US Critique of Brazil’s Application of the Improper Annex IV Methodology is Baseless 68. Brazil has earlier demonstrated, in Section 4 above, the inability of Annex IV of the SCM Agreement to provide useful guidance regarding the calculation of the amount of the contract payments that constitute support to upland cotton. Brazil further demonstrated that the entire premise behind the US attempt to use an Annex IV-like methodology is wrong, since contract payments during MY 1999-2002 were de facto tied to the production of upland cotton. 69. Nevertheless, as an alternative argument, Brazil attempted in its 28 January 2004 Comments to apply the Annex IV paragraph 2 non-tied subsidy allocation methodology to the US summary data. As a preliminary matter, Brazil notes that the United States has never presented any data in support of its methodology.766 Instead, the United States has repeatedly argued that it is not its “burden” to establish the amount of contract payments under its own methodology. The United States has gone even further and refused, to date, to provide the data that would permit the calculation of its “across the value of total production on the farm” methodology. As a result, Brazil had to make a number of assumptions to fill the data gaps. The United States has reserved its energy regarding its methodology for a spirited critique of Brazil’s attempt to apply the US methodology. Brazil responds to these to these arguments, and the incorrect US calculations, below. 70. First, the United States challenges, in paragraph 51 of its 11 February 2004 Comments, the use of non-upland cotton base acreage payments. This criticism is incorrect, since the Panel must make an objective assessment of the amount of “support to” upland cotton under Article 13(b)(ii), including support provided from non-upland cotton base payments. Therefore, Brazil’s inclusion of all contract payments in its calculation was proper. Brazil sets out its arguments in Section 9 infra.767 Consequently, all of the US calculations at paragraphs 59-60 of the US 11 February 2004 Comments are incorrect, because they exclude all non-upland cotton payments.768 71. Second, the United States criticizes Brazil for not having included all farm and non-farm income of a farm into its calculations.769 There is no legitimate basis to include social security and stock market investment income in any payment calculation.770 Brazil has earlier responded to similar US arguments in cost of production discussions.771 The focus of Article 13(b)(ii) is on tabulating the amount of agricultural domestic support to a specific commodity. 72. Third, the United States claims that Brazil should have included the value of livestock raised by upland cotton farmers. The United States has provided no data to support its own methodology or its implied assertion that livestock production is a major component of upland cotton farms’ production. However, the record supports Brazil’s decision not to include any livestock value. A USDA 1997 ARMS study on costs of production on cotton farms showed that only between 0-6 per cent (depending on the category and location) of US upland cotton farms specialize in livestock production.772 Since no significant amount of livestock production is found on upland cotton farms, distortions in Brazil’s results, if any, would be very minor. 73. The United States also raises several issues with respect to Brazil’s calculation methodology. The United States correctly points out that Brazil should have used yields on planted acreage, rather than applying yields on harvested acreage to all acreage planted.773 Brazil has corrected for this in its updated analysis, set out in Annex A.4 – albeit only for its calculation of the value of upland cotton production.774 Since yield information on planted acreage for other crops is not available to Brazil – assuming that the US allegation is correct and the yield data in Exhibit Bra-420 is, indeed, based on harvested acres – Brazil continues to apply this data with respect to planted acreage for other crops. Any bias caused by this inaccuracy will naturally overstate the value of the non-upland cotton crop production on upland cotton farms775 and, thus, undervalue the amount of contract payments constituting support to upland cotton.776 74. The United States also criticizes Brazil’s exclusion of fruits and vegetables from the calculation of the value of non-contract payment crop plantings.777 However, the contract payment programmes themselves exclude fruits and vegetables as possible beneficiaries of that support, by prohibiting the growing of these crops on base acres. There is no legitimate reason to assume that these payments could be support to fruits and vegetables.778 In any event, Brazil notes that the United States required reporting of fruits, vegetables and wild rice acreage on all farms receiving contract payments from MY 1999-2002 and that the Panel has requested this information.779 Thus, the extent of any distortions, if any, can only be assessed when the actual data is reviewed. 75. Finally, the United States repeats its flawed arguments that contract payments have to be reduced by about two-thirds to reflect the fact that only upland cotton farms that own their land in fact benefit from contract payments.780 Brazil refers the Panel to its 28 January 2004 Comments for its arguments on this issue.781 76. In sum, none of the US criticisms summarized at paragraphs 57 and 60 of its 11 February 2004 Comments withstand close scrutiny. Brazil’s calculations under the US Annex IV methodology, based on the incomplete non-farm-specific data, are not biased.782 By contrast, all of the calculations presented by the United States in its 11 February 2004 Comments were improperly based on upland cotton contract payments only.783 Directory: english -> tratop e -> dispu e dispu e -> Annex g list of exhibits submitted by the parties dispu e -> World Trade Organization dispu e -> World Trade Organization Download 2.58 Mb. Share with your friends:
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