Brazil has brought dispute settlement proceedings against the United States on the grounds that the United States provides prohibited and actionable subsidies to US producers, users and/or exporters of upland cotton. Brazil's complaint is that the subsidies are inconsistent with the obligations of the United States under the Agreement on Subsidies and Countervailling Measures, the Agreement on Agriculture and the GATT 1994. Brazil also claims that the United States' measures are not exempt from action under Article 13 of the Agreement on Agriculture (the "peace clause").
On 18 March 2003 a panel was established to hear the dispute. The Panel first received submissions from the parties relating to the application of the "peace clause" and held an oral hearing from 22-24 July 2003.
In its second phase the Panel considered arguments from the parties relating to Brazil's claims that US subsidies to upland cotton cause or threaten to cause serious prejudice to the interests of Brazil under the Agreement on Subsidies and Countervailling Measures as well as violating the GATT 1994. The Panel resumed its first hearing to consider these arguments from 7-9 October 2003.
The Panel has indicated that it will issue its report in May 2004.
New Zealand joined the dispute as a third party because of the systemic issues it raises relating to WTO disciplines on prohibited export subsidies and domestic support in the context of agriculture. New Zealand made written and oral submissions to the Panel in support of Brazil's claims. Other third parties in the dispute are Argentina, Australia, Benin, Canada, Chad, China, Chinese Taipei, the EC, India, Pakistan, Paraguay and Venezuela.