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In the past two months, the U.S. Congress has decided to continue paying Brazilian cotton farmers US$ 147 million a year; speculation intensifies as the United States enters into consultations with China over subsidies for wind energy; and the American Soybean Association makes noises about the potential trade impacts of the European Union’s Renewable Energy Directive. Find out the details in the WTO subsidy dispute round-up....

U.S. Congress upholds annual US$ 147 million payment to Brazilian cotton farmers

On 18 February 2011, the United States’ House of Representatives defeated an amendment to end annual payments of US$ 147 million to Brazilian cotton farmers.

As reported on previously by Subsidy Watch, the United States first agreed to give Brazilian cotton farmers "technical assistance" in April 2010, under a last-minute provisional deal to avoid trade sanctions. The Framework Agreement was reached just days before Brazil had planned to impose retaliatory tariffs against a list of 102 U.S. products, authorized by the WTO. Brazil had also listed 21 items under consideration for cross-retaliation through the suspension of patent and intellectual property rights.

According to a statement published by the National Cotton Council of America (NCC), cancelling the payments “would have violated a condition of the agreement and jeopardized the suspension of trade retaliation by Brazil.”

Charles H. Parker, Chairman of the NCC, added that “U.S. cotton industry leaders are encouraged that the Framework Agreement has been sustained and are committed to work with all parties to resolve the dispute”.

According to ICTSD news publication Bridges Weekly Trade News Digest, Ron Kind, the Wisconsin Democrat who originally proposed the amendment, commented that the payments were an example of the “lunacy” of the country’s farm subsidies, and illustrative of “the built-up resistance in this institution to get to the hard work of reforming these farm-subsidy programs."

Democrat Barney Frank, a ranking member of the House Financial Services Committee, also criticised the arrangement. According to Washington DC newspaper The Hill, he argued during the committee’s hearing that the trade dispute could alternatively have been settled by ending subsidies to U.S. cotton farmers – “We could have sent US$ 150 million less to Americans."

The payments arranged under the framework agreement will now remain until the United States develops its new farm bill in 2012. According to the NCC, this will include provisions regarding the United States’ upland cotton program that Brazil has approved, bringing the dispute to an end.

United States President Barack Obama’s visit to Brazil at the end of March was widely perceived as a sign of a healthy trade relationship between the two countries, with agreements being reached on number of issues, including the trade of biofuels.

U.S.-China WTO dispute on renewable energy: Consultations requested

On 22 December 2010, the United States Trade Representative (USTR) requested consultations with the People’s Republic of China over its support schemes for renewable energy.

The action arose out of an investigation initiated by the USTR in response to a United Steelworkers (USW) petition filed on 9 September 2010. As reported previously in Subsidy Watch, this 5,800-page document alleged that “China has utilized hundreds of billions of dollars in subsidies, performance requirements, preferential practices and other trade-illegal activities to advance its domination of the sector.”

In its own investigation, the USTR concluded that, since 2008, China has awarded grants worth several hundred million dollars to Chinese wind turbine manufacturers under its wind-power subsidy programs, and that its Special Fund for Wind Power Manufacturing appears to fall within the prohibition of the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM) Article 3.1(b), which prohibits subsidies conditioned on the use of domestic over imported goods, known as import-substitution subsidies.

“Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules,” said USTR Ambassador Ron Kirk in a press statement. “These subsidies effectively operate as a barrier to U.S. exports to China. Opening markets by removing barriers to our exports is a core element of the President’s trade strategy.”

A day after the submission of the request for consultations, the Chinese Ministry of Commerce statedthat “all countries are developing new energy sources to deal with climate change. China’s measures on wind power development help to save energy, reduce emissions and protect the environment, which are important measures for sustainable development, and comply with WTO rules.”

In an article in British newspaper The Guardian, Kevin Gallagher, professor of international relations at Boston University, argued that “subsidies to renewable energy, such as wind power, can help correct the distortions in the energy market and allow the world to climb the learning curve for renewable forms of energy.” He suggested that such ‘market-correcting’ subsidies should be allowed in the WTO’s rules.

Other commentators, such as the non-profit Americans for Energy Leadership, have described the USTR’s claim as “hypocritical” and argued that the U.S. itself is using policies that favour domestic manufacturing. For example, in January 2011 President Obama signed a law mandating that the U.S. Defence Department purchase domestically manufactured solar panels.

Both the EU and Japan have formally joined the consultations in light of their “substantial trade interest” in the dispute.

Consultations, which are the first step within WTO dispute settlement process, last 60 days. If the matter is not resolved through consultations, the United States may request the establishment of a WTO dispute-settlement panel. At the time of publication of this issue of Subsidy Watch, despite the period for consultations having surpassed 60 days, no information was available about an outcome: the WTO still identified the case’s status as “In consultations”.

Looming US-EU Case on Biodiesel? 

On 9 March 2011, U.S. oilseed growers, led by the American Soybean Association (ASA), expressed their concern about the European Union’s Renewable Energy Directive on the grounds that it could threaten imports of American soybeans. In a letter to the U.S. Department of Agriculture (USDA) and the U.S. Trade Representative (USTR) the group called for an immediate response to the potential trade barriers and demanded that they “place an immediate priority on seeking to initiate bilateral negotiations between governments.”

The Renewable Energy Directive commits the European Union to sourcing 20% of its energy from renewables by 2020, within which 10% of its transport-related energy needs must be met with renewable energy. It stipulates that, until January 2017, if biofuels and bioliquids are to be counted as contributing to this goal, they must emit at least 35% less greenhouse gas (GHG) emissions than their fossil-fuel equivalents, and after that date they must offer savings of at least 50%.

The Directive also specifies which type of land can be used to produce the biomass for the fuel in order to meet sustainability criteria. The European Commission encourages using “voluntary schemes” of “Sustainable Biofuel Certificates”, to ensure that the GHG and land-use requirements are met.

EU analysis, based on Brazilian production and transportation data, concluded that U.S. soy biodiesel offers GHG savings of 31%, meaning that European importers cannot count U.S. biodiesel towards their Renewable Energy Directive targets. The ASA, however, argues that a study conducted by the United Soybean Board (USB) shows that U.S soy biodiesel saves up to 52% of the GHG emitted by fossil fuels.

Since Germany implemented the Directive, on 1 January 2011, the ASA claim that U.S. soybean exports to the country have declined significantly and that soybean oil produced in the EU from U.S. supplies is being re-exported.

Steve Wellman, the ASA’s First Vice President, claims that "as other Member States transpose the Directive into national law, ASA anticipates the economic viability of exporting U.S. soybeans to the EU will be further eroded, and that a US$ 1 billion market could be lost."

The U.S. agriculture delegation is said to have recently held talks with senior European Commission energy staff in Brussels. According to Corn&Soybean Digest, Marc Curtis, the Chairman of the USB, described the talks as “frustrating… . The EU Commission acknowledged they have the results of our research and they indicate that they more or less agree with our numbers. But it’s more of a political situation than it is a sound-science situation.”

An EU official stated to news publication Inside U.S. Trade that the European Commission does not have the authority to suspend the Renewable Energy Directive and must rather ensure the implementation of it. “The Commission has already taken the first steps […] in order to ensure that all member states complete their notification of transposition legislation of the Renewable Energy Directive. It is an important piece of legislation for the EU.”