The WTO Dispute Over Implementation of the Rulings in the US Cotton Case

Abstract

Although multilateral rules regulating subsidies on the basis of their effects rather than their classification have existed since the end of the Tokyo Round, the WTO dispute over implementation of the rulings in the US Cotton case is only the second time (the first time being the Follow Up to the Oilseeds Panel in 1992) that an implementation dispute has arisen in the context of rules regulating subsidies on the basis of their effects and it was the first time that the WTO Appellate Body has considered the issue. The Panel and Appellate Body reports in US Cotton Recourse to Article 21.5 give effect to the intention of the rules which is to permit Members to respond to certain subsidies by rebalancing through compensation or retaliation. The AB reports clarified that a Member has failed to comply with a ruling to remove adverse effects found to be caused by a subsidy in a particular period when the measures remaining in place after the implementation date continue to cause adverse effects in the period after the implementation date has passed. In reaching that conclusion, the panel and Appellate Body rejected a number of procedural arguments about the appropriate scope of the Article 21.5 proceedings the acceptance of which would have disabled the substantive operation of the 'effects’ rules. The approach to reviewing implementation of the rulings under the adverse effects rules has been done in a way which facilitates the operation of the rules for rebalancing through compensation or retaliation to adjust for the adverse effects.

The author also reviews other aspects of the reports. On the scope of the Article 21.5 review of the original decision regarding illegal export subsidies, the AB found that an article 21. 5 panel can review the whole of the operation of a measure which has been changed to comply with a ruling. The AB also found that a modified export credit programme continued to circumvent export subsidy commitments in violation of Article 10 of the Agreement on Agriculture but avoided having to decide on the relationship between the definition of export subsidy and the Illustrative List of export subsidies in the Agreement on Subsidies and Countervailing Measures. The author also comments on the significance of the expert economic evidence in the finding that the continuing effect of the subsidies was to cause serious prejudice.

Keywords: world trade organization, dispute settlement understanding, agreement on subsidies and countervailing measures, agreement on agriculture, subsidies, adverse effects, serious prejudice, Article 21.5

JEL Classification: K10, K30, K33