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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- IV. THE UNITED STATES MY 1999-2002 SUPPORT TO UPLAND COTTON EXCEEDS THE MY 1992 SUPPORT TO UPLAND COTTON UNDER ANY METHODOLOGY
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Brazil’s Methodology1156 16. In applying Brazil’s Methodology to the new 3 March 2004 US summary data, Brazil again corrected for the over-inclusiveness of farms in Category A1157 and applied the contract yields, as provided by the 28 January 2004 summary data1158, and the payment rates1159 to calculate the amount of contract payments by category of farms.1160 Brazil recalls that its methodology allocates for each acre planted to a contract payment crop payments associated with one base acre of that crop – as available. All further contract payments not allocated to their respective contract payment crop are pooled and allocated proportionally to the planted acres of contract payment crops to which no contract payments have been assigned under the first step.1161 17. For the purposes of Brazil’s methodology, Brazil treats soybeans as a non-contract payment crop for purposes of MY 1999 and 2000 market loss assistance payments1162 and peanuts as a non-contract payment crop for purposes of MY 2002 direct and counter-cyclical payments. This treatment follows from Brazil’s inability to correct the Category A data concerning soybean and peanut plantings, discussed above.1163 In addition and as discussed above, Brazil has not been able to allocate any MY 1999-2000 soybean market loss assistance payments or MY 2002 peanut direct and counter-cyclical payments because no data on these payments has been provided. Accordingly, soybeans and peanuts neither receive contract payment allocations, nor are soybean and peanut contract payments allocated for the relevant marketing years. 18. The details of Brazil’s calculations are presented (by farm category) in electronic form as Exhibit Bra-433 (‘Calculations Acreage Based Methodologies.xls’). Brazil applied the very same calculation methodology as in its 28 January 2004 Data Comments and in its 18 February 2004 Data Comments.1164 This methodology is not entirely identical to Brazil’s 20 January 2004 discussion of its methodology, which anticipated the use of farm-specific data that was never produced by the United States.1165 Thus, certain adjustments, documented in Brazil’s 28 January 2004 Data Comments, were necessary.1166 19. The table below shows the results of Brazil’s calculations.
20. The differences between results of the “Cotton-To-Cotton” Methodology and Brazil’s Methodology result from the fact that under Brazil’s Methodology a limited amount of non-upland cotton contract payments is allocated as “support to upland cotton.” However, the great majority of upland cotton is planted on farms holding upland cotton base acres and their amount of upland cotton base acres closely tracks their amount of upland cotton planted acres. Thus, upland cotton contract payments account for the great majority of contract payments allocated even under Brazil’s methodology. The following table presents, by marketing year, the amount of upland cotton planted acres for which there exists a corresponding upland cotton base acre farm category.
Modified US Annex IV Methodology1171 21. In applying the first value-based methodology, the Modified Annex IV Methodology, to the new 3 March 2004 US summary data, Brazil again corrected for the over-inclusiveness of Category A and applied contract payment yields, as provided by the 28 January 2004 summary data, and the contract payment rates to calculate the total amount of contract payments by category of farms.1172 22. Brazil was required to exclude soybeans1173 and peanuts from the allocation calculations under this methodology1174 (as well as under Brazil’s Methodology) for the following reasons: First, since the United States did not provide data on soybean and peanut plantings with its 28 January 2004 summary data, Brazil is unable to correct these data items in the US 3 March 2004 Category A summary data.1175 There were three theoretical options available to Brazil to address this problem. First, Brazil could have left in Category A all farms which were included by the United States, but which do not produce upland cotton. This approach would have resulted in distortions because considerable amounts of extra contract payments received by farms not producing upland cotton as well as unknown amounts of extra contract payment crop value generated by these non-upland cotton producing farms would be included in the calculations. Or, second, Brazil could have corrected the over-inclusiveness of Category A for all data items that it could correct leaving the additional soybean and peanut acreage from non-upland cotton producing farms in the pool. This approach would have resulted in distortions because unknown amounts of extra value of soybean and peanut production from non-upland cotton producing farms would be included in the calculations. To avoid these distortions, Brazil has selected the third option – to exclude soybeans and peanuts from the allocation. This choice enables Brazil to correct the Category A data for the inclusion of farms not producing upland cotton, in the manner described above1176, and to proceed with its calculations. 23. Second, Brazil notes that the United States distinguishes the soybean market loss assistance and peanut direct and counter-cyclical payments in MY 1999, 2000 and 2002 as being producer-based rather than farm-based payments. But, the United States never provided information on the amount of these payments. However, payments received by producers of these crops that also owned upland cotton producing farms (to which all other contract payments were made) would need to be considered for any allocations methodology (except the “Cotton-To-Cotton” Methodology). 24. No doubt Brazil’s choice not to include soybean and peanut planted acreage and soybean market loss assistance and peanut direct and counter-cyclical payments leads to distortions. These are unavoidable given the incorrect US reading of the definition of Category A farms. However, Brazil believes that these distortions are relatively minor. Brazil has excluded payments stemming from soybean market loss assistance and peanut direct and counter-cyclical payments1177 as well as the crop value of soybean (for MY 1999-2001) and peanut (for MY 2002) production.1178 Thus, soybeans and peanuts do not contribute contract payments to the pool of payments allocated over the value of the entire contract payment crop production of upland cotton producing farms. But, there are also no contract payments being allocated to soybeans and peanuts for these years. This minimizes distortions by roughly cancelling out over and under-counting effects from their exclusion from the calculation. Brazil notes that, for other crops, the amount of crop plantings and crop payment base is fairly proportionate.1179 Soybeans and peanuts in all likelihood follow a similar pattern. In excluding these crops entirely from the calculations, Brazil minimizes the distortions resulting from the shortcomings of the 3 March 2004 US summary data, based on the assumption that these crops would contribute an equal (or very similar) amount of contract payments to the pool, as they would be allocated based on their share of the total value of contract payment crop production. 25. As in its 18 February 2004 calculations, Brazil calculated, by category of farm, the value of each contract payment crop produced on farms that make up the category. Brazil multiplied the amount of planted acreage times the yield1180 and times the per unit price of the particular crop.1181 Total contract payments for each category of farm were then allocated to upland cotton according to the share of the upland cotton crop value of the total value of contract payment crop production on the farms of that category. The details of Brazil’s calculations are presented (by farm category) in electronic form as Exhibit Bra-434 (‘Calculations Value Based Methodologies.xls’). 26. The table below shows the resulting support to upland cotton under this methodology.
Brazil notes that these allocations are conservative. Absent data on yields per planted acre for any non-upland cotton crop, Brazil applied yields on harvested acres to calculate the amount of crop produced from all planted acres, thereby ignoring abandonment. This calculation leads to overstating the value of non-upland cotton crop production by overstating the amount of such production. By contrast, the value of the upland cotton crop has been calculated by using yields on planted acres, providing an accurate estimate.1184 Thus, Brazil’s calculations overstate the value of non-upland cotton contract payment crops produced in each of the farm categories, resulting in lower allocations to upland cotton. US Annex IV Methodology 27. Brazil could not perform any updated calculations under this methodology based on the 3 March 2004 US summary data. The reason is that Brazil could not exclude from Category A data those farms that do not produce upland cotton.1185 The US Annex IV Methodology would necessitate adjusting Category A data, inter alia, concerning planted soybeans acreage in MY 1999-2001 and peanut acreage in MY 2002. However, no such planted acreage data is available in the 28 January 2004 US summary data and, therefore, no such adjustment to Category A can be performed. 28. Further, for MY 2002, the 3 March 2004 US summary data provides more specific data items, including acreage data for fruits and vegetables, ELS cotton, tobacco and peanuts for all categories of farms. However, because these data items were also not provided in the 28 January 2004 US summary data, Brazil cannot correct the over-inclusiveness of Category A for these data items. In addition, the United States appears to have included more acreage in its “All Other Use Acres” than simply cropland. The sum of all non-contract payment crop acres in the 3 March 2004 US summary data exceeds the additional cropland as reported in the 28 January 2004 US summary data. This again precludes an adjustment of this data item in Category A for its over-inclusiveness, since the 28 January 2004 and the 3 March 2004 sets of summary data do not appear to be congruous. 29. Once more, the inability to exclude the non-upland cotton producing farms from Category A is important, because including a large number of farms that do not produce upland cotton in the allocation calculations would add a large potential for distortions given the significant amounts of plantings and contract payment crop base by these farms. 30. Further, while the 28 January 2004 US summary data provided information on the amount of non-contract payment crop acreage for MY 1999-2001, the 3 March 2004 US summary data fails to do so. Thus, for those marketing years and for purposes of the US Annex IV Methodology, Brazil could not rely on the 3 March 2004 US summary data and categorization of upland cotton farms at all, since the 3 March 2004 US summary data does not contain any information on the plantings of non-contract payment crops on these farms. For purposes of the US Annex IV Methodology, Brazil, however, needs to rely on planting data for non-contract payment crops to estimate the value of their production on upland cotton producing farms – data such as that provided by the United States in its 18/19 December 2003 and 28 January 2004 data submissions. Thus, Brazil’s 18 February 2004 US Annex IV Methodology results based on the 28 January 2004 US summary data are more accurate than any calculations that could be performed based on the 3 March 2004 US summary data or some adjusted version thereof. Therefore, Brazil reproduces below its 18 February 2004 results applying the US Annex IV methodology to the 28 January 2004 US summary data. Annex A.4 Table 4.81186
Brazil notes that these allocations are conservative for two reasons: (1) the calculations overstate the value of non-upland cotton contract payment crops, as discussed in the context of the Modified Annex V Methodology; and (2) the calculations do not account for soybean market loss assistance payments in MY 1999-2000 and peanut direct and counter-cyclical payments in MY 2002.1187 IV. THE UNITED STATES MY 1999-2002 SUPPORT TO UPLAND COTTON EXCEEDS THE MY 1992 SUPPORT TO UPLAND COTTON UNDER ANY METHODOLOGY 31. In the previous Section, Brazil has updated its 18 February 2004 calculations of the support to upland cotton applying various acreage- and value-based allocation methodologies. In this Section, Brazil combines its results with data on the amount of support to upland cotton from the other support programmes, and provides the Panel with summary tables for each of the 1999-2002 marketing years comparing the support to upland cotton in those marketing years with the MY 1992 level of support to upland cotton. 32. As Brazil discussed in its 18 February 2004 Data Comments, Article 13(b)(ii) of the Agreement on Agriculture endorses no particular methodology. Thus, the Panel needs to choose a reasonable methodology for allocating contract payments as support to upland cotton.1188 Brazil favours its methodology, based on an allocation pursuant to the acreage planted to contract payment crops, but also provides results under the Cotton-To-Cotton Methodology (similarly based on an acreage comparison), as well as two value-based methodologies. 33. However, Brazil strongly urges the Panel to apply an acreage-based methodology – preferably Brazil’s Methodology. A particular flaw in a value-based methodology is that allocating counter-cyclical payments over the value of crop production means that allocations for a crop will decrease if prices for that crop fall.1189 Thus, at the time when counter-cyclical payments are “critically needed”1190 to offset low prices for a crop, a value-based methodology would allocate these counter-cyclical payments increasingly as support to other crops, whose prices have not fallen. Using a value-based allocation methodology shifts the share of counter-cyclical payments that are allocated to the crop with falling prices away from that crop and to crops with increasing or constant prices. By contrast, allocating contract payments over the acreage planted to contract payment crops – as done by the “Cotton-To-Cotton” Methodology and by Brazil’s Methodology – provides an allocation approach that reflects the economic reality and intention behind the counter-cyclical payment support. 34. But Brazil emphasizes that, on the facts of this case, and using whichever methodology the Panel may ultimately choose, the US MY 1999-2002 support to upland cotton exceeds the MY 1992 level in each year and under each methodology (with the exception of the “Cotton-To-Cotton” and the US Annex IV Methodology in MY 2000).1191 35. The following four tables present the peace clause comparisons for MY 1999-2002. The table below presents Brazil’s peace clause comparison for MY 2002. Budgetary Outlays For Upland Cotton MY 1992 and MY 20021192
(1) Cotton-To-Cotton Methodology (2) Brazil’s Methodology (3) Modified Annex IV Methodology (4) US Annex IV Methodology (based on 28 January 2004 US summary data) 36. The table below presents Brazil’s peace clause comparison for MY 2001. Budgetary Outlays For Upland Cotton MY 1992 and MY 20011194
(1) Cotton-To-Cotton Methodology (2) Brazil’s Methodology (3) Modified Annex IV Methodology (4) US Annex IV Methodology (based on 28 January 2004 US summary data)1196 37. The table below presents Brazil’s peace clause comparison for MY 2000. Budgetary Outlays For Upland Cotton MY 1992 and MY 20001197
(1) Cotton-To-Cotton Methodology (2) Brazil’s Methodology (3) Modified Annex IV Methodology (4) US Annex IV Methodology (based on 28 January 2004 US summary data) 38. The table below presents Brazil’s peace clause comparison for MY 1999. Budgetary Outlays For Upland Cotton MY 1992 and MY 19991199
(1) Cotton-To-Cotton Methodology (2) Brazil’s Methodology (3) Modified Annex IV Methodology (4) US Annex IV Methodology (based on 28 January 2004 US summary data)
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