As part of a decade-long dispute in the World Trade Organization (WTO) involving US cotton subsidies, Brazil is again threatening significant trade retaliation against a wide variety of US goods and intellectual property rights. The proposed retaliation would substantially increase tariffs on US exports across various sectors and industries, and would suspend or restrict US intellectual property rights in Brazil. If enacted, the retaliatory measures could have a devastating impact on US businesses.

The “Cotton Case” began in 2002, when Brazil brought a complaint in the WTO alleging that US cotton subsidies were illegal. The WTO agreed and, by 2009, with the US having failed to bring its cotton program into compliance with international obligations, authorized Brazil not only to “retaliate” (i.e., suspend trading rights) against US agricultural products, but also to “cross-retaliate” against a wide variety of US exports and intellectual property rights. The total WTO-authorized trade retaliation was approximately $830 million.

Toward such end, in March 2010, Brazil’s Chamber of Foreign Commerce (CAMEX) published a final list of over 100 US products, including agricultural goods, automobiles, pharmaceuticals, cosmetics, clothing, medical equipment, and electronics, for which retaliatory tariffs would range from 14% to 100%. However, higher tariffs on US exports would hurt not only US industries, but Brazilian consumers as well.

Thus, in March 2010, CAMEX also published a preliminary list of categories for which US intellectual property rights would be suspended. The cross-retaliatory measures would affect patents, copyrights, and trademarks in, inter alia, pharmaceuticals, biotechnology, chemicals, motion pictures, music, and book publishing. The proposed measures included a lesser duration of protection for these US intellectual property rights; licensing of such rights without authorization from, or payment of royalties to, the owner of the intellectual property; allowing parallel importation; increased official fees to prosecute and maintain such intellectual property rights; and restrictions on the remuneration to which the US intellectual property rights holders would be entitled. An April 7, 2010 article in the New York Times estimated that such cross-retaliatory measures would have cost US businesses up to $239 million.1

Nevertheless, Brazil suspended retaliation after reaching a temporary agreement with the US in April 2010, under which the US agreed to pay $147.3 million annually, in monthly installments, to the Brazilian cotton industry until the US brings its cotton subsidies into compliance with WTO rules. But for budgetary reasons, the US suspended those payments in October 2013. Congress has yet to pass a new farm bill remedying the US cotton subsidy program.

As a result, on December 18, 2013, CAMEX agreed to resume retaliation and, in January, is now soliciting public comment on the specific US intellectual property rights that could be suspended. A final decision on both the conventional trade retaliation and the intellectual property retaliation could be issued by the end of February 2014. Arent Fox is currently monitoring the status of this case.