United States-Brazilian Cotton Dispute: The Possible First-Ever WTO-Sanctioned Cross-Retaliation against IP Rights

Developments have been moving fast in Brazil regarding the possible first-ever WTO-sanctioned cross-retaliation against intellectual property rights.  

In November 2009, the World Trade Organization (WTO) gave Brazil the formal go-ahead to impose sanctions on U.S. imports after previous WTO rulings found that the U.S. government spent too much on subsidies for cotton farmers and on an export credit guarantee program. The WTO arbitration panel designated up to $829 million in permissable damages against the United States. Brazil took the first step toward retaliation on March 8, 2010 when it issued a list of increased tariffs on 102 goods, amounting to $591 million dollars. This list included, for example, a 50% tariff on cars with small engines, a 22% tariff on bar code scanners, and a 100% tariff on cotton and cotton products. These higher tariffs could go into effect within 30 days, unless the Brazilian and U.S. governments reach a last-minute accord.

This left about $238 million for intellectual property-related retaliation, which is the second target of the Brazilian government. This IPR list was to be issued on March 23, but came out a few days early, on March 12 -- this document was more of a concept paper, not specific regulatory measures. The March 12 resolution on IPR is, however, very expansive in scope. It outlines 21 possible ways to suspend intellectual property protection for certain products that are protected by IP in Brazil.   For example, possible measures that could be developed range from prematurely ending patents' and copyrighst' term of protection, granting compulsory licensese for patents on medicines and copyrights, suspending parallel imports of certain products, adding higher fees for the registration of IPR (including copyright registration not currently required for foreign works) in Brazil and taxing certain royalty payments. These proposals were subject to a 20-day public comment period (comments due April 5 in Brazil).  Suffice it to say, rights holders, both in the U.S. and Brazil, are very concerned about the potential adverse impact of any such retaliation against IP-protected goods and services there.  

Not surprisingly, Brazilian officials have been quoted as defending their actions: Brazilian officials have said that contrary to what happens with direct retaliation, the retaliation against intellectual-property rights would tend to reduce the cost of goods imported from the U.S.; "For final consumers, this measure could reduce prices and costs in as far as there may be a suspension in payment towards patents," said Brazilian Foreign Trade Secretary Lytha Spindola. (source: Wall Street Journal, March 15, 2010). Brazilian officials have indicated that they are not yet certain which subset of measures they will choose to implement, or even how those resulting measures will be implemented in practice.

On April 6, both governments announced that they had agreed on a path toward a negotiated settlement with Brazil over the cotton dispute.  In brief, this involved a three baskets of steps affecting agricultural products and rules that the U.S. agreed to take immediately. Following implementation of these initial steps, both governments agreed to continue to engage on these issues, with a view to agreeing on a process by June 2010 that will allow them to reach a mutually agreed solution to the WTO cotton dispute.  As for first steps, if the U.S. completed certain steps by April 22, Brazil would postpone possible retaliation.  On April 21, USTR announced that a Memorandum of Understanding was signed, and Brazil agreed to postpone possible retaliation another 60 days.  This gives both sides a short breathing period to evaluate the situation and work towards a negotiated solution.  To be clear, however, potential cross-retaliation against IPR is not "off the table."  Cross-retaliation against IPR remains a viable countermeasure, sanctioned by the WTO, that Brazil still can invoke against the U.S. if a solution to the cotton dispute is not swiftly resolved. 

View the Press Release from the Office of the United States Trade Representative