34 This expression is more accurate for small changes in price than large ones. These are third-order effects in that they would be captured by the third term in a Taylor-series expansion. It will be shown later that the results are not very sensitive even to second-order effects (alternative assumptions about supply elasticities).
35 Two studies have estimated the supply elasticity of cotton in Tanzania. Dercon (1993) estimated an elasticity of 0.63, while Delgado and Minot (2000), using more recent data, obtained an estimate of 1.0.
36 The Foster-Greer-Thorbecke measures of poverty are calculated as
where Pa is the poverty measure, N is the number of households, μ is the poverty line, and yi is the income or expenditure of poor household i (the summation occurs only over poor households). When α=0, the poverty measure, P0, is the incidence of poverty, that is, the proportion of households whose income is below the poverty line. When α=1, the poverty measure, P1, is the poverty-gap measure. The poverty gap is equal to the incidence of poverty multiplied by the average gap between the poverty line and the income of a poor household, expressed as a percentage of the poverty line. Thus, it takes into account the depth of poverty as well as the percentage of the households that are poor. If α=2, then the poverty measure, P2, takes into account the degree of inequality among poor households, as well as the depth of poverty and the number of poor households. P2, sometimes called the poverty-gap squared, will be referred to as a measure of the severity of poverty (see Foster, Greer, and Thorbecke, 1984).
1 It is worth noting that the average yield is calculated at the household level and aggregated, so it is not necessarily equal to the average quantity divided by the average area. A similar qualification applies to production, price, and value of output.
2 When the Small Farmer Survey was carried out, the exchange rate was around 630 FCFA/US$, so that the value of cotton production was US$ 901 per cotton farm.
1 This estimate is obtained by multiplying the percentage point increase in poverty (.08), the number of farm households in Benin based on the sum of the sampling weights (474,964), and the average household size of farms in Benin according to the survey (8.8).
2 As mentioned earlier, since the survey was carried out, the number of departments has increased from 6 to 12. The sample size of the survey is too small to allow disaggregation of results by the newly defined departments.
3 Until recently, the effect of changes in world prices on farm-level prices in Benin was muted by government regulation of the market which stablized prices. Under market reforms being carried out in Benin and elsehwere in West Africa, markets are becoming more competitive and changes in farm prices will closely match changes in world prices.
4 Brazil’s submission, para. 96.
5 Ibid., paras 437-443.
6 Panel report, Indonesia – Automobiles, WT/DS54/R, para. 14.254.
7 Report by the Informal Group of Experts to the Committee on Subsidies and Countervailing Measures, 25 July 1997, G/SCM/W/415, paras. 5-12.
8 Brazil’s submission, para. 265.
9 Brazil’s submission, para. 301.
11 Panel report, European Communities – Refunds on Exports of Sugar (Australia), BISD 26S/290, para. 4.31
12 Panel report, European Communities –Refunds on Exports of Sugar (Brazil), BISD 27S/69, V(f).
13 Brazil’s submission, para. 304.
14 Ibid., para. 302.
15 Ibid., para. 303.
16 Brazil’s submission, para. 417.
17 EC’s First Third Party Submission, paras. 4-7.
18 See e.g. the Panel report on United States – Countervailing Measures Concerning Certain products from the European Communities, WT/DS212/R, para. 7.123:
While only legislation that mandates a violation of WTO obligations can be WTO-inconsistent, we are of the view that the existence of some form of executive discretion alone is not enough for a law to be prima facie WTO - consistent, what is important is whether the government has an effective discretion to interpret and apply its legislation in a WTO-inconsistent manner.
19 Panel report, United States – Sections 301-310 of the Trade Act of 1974, WT/DS152/R, para. 7.53. [footnotes omitted]
20 Appellate Body report, United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, para. 99.
21 Appellate Body report, United States – Countervailing Measures Concerning Certain Products from the European Communities, WT/DS212/AB/R, footnote 334.
22 Panel report, United States – Taxes on Petroleum and Certain Imported Products, BISD 34/136, 160, paras.5.2.1-5.2.2.
23 United States – Subsidies on Upland Cotton, Third Party Submission of New Zealand, 15 July 2003 (“New Zealand’s First Submission”).
24 United States – Subsidies on Upland Cotton, Brazil’s Further Submission to the Panel, 9 September 2003 (“Further Submission of Brazil”).
25 United States – Subsidies on Upland Cotton, Further Submission of the United States of America, 30 September 2003 (“Further Submission of the US”).
26 New Zealand uses that term as it is used by Brazil in its Further Submission (para 7). Details of these programmes were provided by Brazil in its First Submission to the Panel Regarding the “Peace Clause” and Non-“Peace Clause” Related Claims, 24 June 2003 (“First Written Submission of Brazil”), paras 45 – 106.
27 New Zealand uses the term as it is used by Brazil in its Further Submission to also encompass circumstances showing price depression characteristics.
34 Ibid, Part 184.108.40.206. Brazil has demonstrated that by the end of MY 2001 the cost-revenue gap had increased to 39 cents per pound (para 121).
35 See Ibid, para 105. Between 1998 and 2001 production increased by 45.5 per cent and exports by 161 per cent.
36 Ibid, para 130.
37 In MY 2001 United States production reached 19.603 million bales (Ibid, para 131).
38 Ibid, para 132.
39 Ibid, para 288.
40 Ibid, para 283.
41 Ibid, para 220.127.116.11.
42 19.5 per cent in MY 2002 (Ibid, para 135).
43 Ibid, paras 106 and 107.
44 Evidence adduced by Brazil, specifically the Quantitative Simulation Analysis by Professor Daniel Sumner, shows that but for the United States subsidies A-Index prices between MY 1999-2002 would have been, on average, 12.6 per cent higher.
45 Further Submission of the US, para 16.
46 Ibid, para 17.
48 Further Submission of Brazil, para 231.
49 Further Submission of the US, para 80.
50 Ibid, para 77.
51 Ibid, para 79.
52 Further Submission of Brazil, Part 6.
53 Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, adopted 23 July 1998 (“Indonesia – Automobiles”). The Panel considered (at para 254) the meaning of “significant” in the context of Article 6.3(c) and concluded:
Although the term “significant” is not defined, the inclusion of this qualifier in Article 6.3(c) presumably was intended to ensure that margins of undercutting so small that they could not meaningfully effect suppliers of the imported product whose price was being undercut are not considered to give rise to serious prejudice.
54 Further Submission of Brazil, para 95and para 256.
55 Ibid, para 95.
56 This example is of course based on the effect of subsidies on “like products”, which, as Brazil has demonstrated (Further Submission of Brazil, part 3.3.2), United States upland cotton and Brazilian upland cotton are.
57 Further Submission of the US, para 84.
58 Panel Report, Indonesia – Automobiles, para 14.254.
59 Further Submission of the US, para 87.
60 Ibid, para 90.
61 Further Submission of Brazil, para 80.
62 Further Submission of the US, para 94.
63 Ibid, para 95.
64 Brazil has demonstrated that the effects of the United States subsidies continue after they have been provided because, for example, they have “wealth” and “investment” effects (Further Submission of Brazil, part 18.104.22.168.7).
65 Further Submission of Brazil, para 267 and Figure 24.
66 Ibid, paras 271 – 272.
67 Further Submission of Brazil, part 3.5.
68 GATT Panel Report, EEC – Subsidies on Export of Wheat Flour, SCM/42, (unadopted).
69 Further Submission of the US, paras 108 and 109.
70 Ibid, para 105.
71 Further Submission of Brazil, para 17.
72 Ibid, para 157.
73 Ibid, para 287.
74 Ibid, Table 12.
75 Further Submission of the US, para 74.
76 Ibid, paras 73 and 74.
77 Further Submission of Brazil, Annex 1, Table I.4.
84 GATT Panel Report, European Communities – Refunds on Exports of Sugar (Complaint by Australia), L4833 – 26S/290, adopted 6 November 1979.
85 GATT Panel Report, European Communities – Refunds on Exports of Sugar (Complaint by Brazil), L5011 – 27S/69, adopted 10 November 1980.
86 Appellate Body Report, United States – Tax Treatment for “Foreign Sales Corporation”, WT/DS108/AB/R, adopted 20 March 2000.
87 Further Submission of the US, para 115.
88 Further Submission of Brazil, para 291.
89 For example, for purposes of a claim under Article 6.3(c) of the Subsidies Agreement, the “effect of the subsidy” must be “significant price undercutting” or “significant price suppression, price depression, or lost sales” caused by “the subsidized product.” Similarly, under Article 6.3(d) “the effect of the subsidy” must be an increase in world market share “in a particular subsidized primary product or commodity.”
90 Subsidies Agreement, Annex IV, paras. 1 3 (We note the context provided by Annex IV of the Subsidies Agreement, which explained the calculation of the ad valorem subsidization of a product under the now defunct Article 6.1(a) of the Subsidies Agreement. This Annex provided that (among other conditions), unless “the subsidy is tied to the production or sale of a given product,” the overall rate of subsidization of a “product” is found by taking the amount of the subsidy over the “total value of the recipient firm’s sales in the most recent 12 month period”.).
91 Brazil purports to include export credit guarantees under the GSM 102 programme within its actionable subsidy claims. However, Brazil has merely alleged the quantities of export credit guarantees benefitting cotton and the value of exports. Brazil has nowhere presented evidence on any alleged subsidy rate resulting from this programme nor the amount of the subsidy. Therefore, Brazil again has not provided any evidence with respect to the amount of the subsidy alleged to be provided by US export credit guarantees.
92 The report provided by Brazil as Annex I to its further submission does not provide the model itself, including detailed specifications of the equations used therein. As a result, Brazil is essentially asking the Panel and the United States to accept Dr. Sumner’s results on faith alone. The United States points out why Brazil’s expert’s approach is inappropriate for a retrospective analysis of the effect of US subsidies. Even were Brazil’s expert’s approach appropriate, however, Brazil has failed to provide sufficient evidence to allow the Panel to fully understand and evaluate that model. Thus, quite apart from flaws identified by the United States, Brazil’s reliance on Dr. Sumner’s inadequately explained results, evident throughout Brazil’s latest submission, further demonstrates that Brazil has not established a prima facie case that US subsidies have the effects complained of.
93 Consider as an example the 2002 crop year. In Brazil’s analysis, area response to the removal of the cotton loan programme results in a 36 per cent reduction in US planted area–the largest single effect for any of the years considered in his analysis. Based on lagged prices, price expectations for 2002 were 29.8 cents per pound, a 40 per cent reduction from 2001 levels. Yet, the futures market data suggests a far smaller reduction in expected price. December futures prices taken as an average in February 2002 averaged 42.18 cents per pound, a 28 per cent drop from year earlier levels. Based on Brazil’s range of supply response elasticities of 0.36 to 0.47, a decline of this magnitude would suggest a drop in acreage of 10 to 13 per cent from the preceding year. In fact, actual US cotton acreage dropped 12 per cent (from 15.5 million acres in 2001 to 13.7 million acres in 2002) suggesting acreage levels entirely consistent with world market conditions and price expectations.
94 Brazil’s expert’s estimate for the 2002 A Index is 51 cents, compared with 54 cents in FAPRI’ s March 2003 baseline, and an actual price of 56 cents. For 2003, Brazil’s expert’s A Index is estimated again at 51 cents, whereas FAPRI’s baseline has a 58.4 cent forecast; as of 15 September 2003, the A Index is at 65.5 cents.
95 Sumner, D.A. “Implications of the US Farm Bill of 2002 for Agricultural Trade Negotiations.” Australian Journal of Agricultural and Resource Economics. 47(2003): 99 123, at 114. (See Exhibit US 56)
96 In Brazil’s baseline, Step 2 payments average 5.6 cents per pound over the 2003 07 period, elimination of Step 2 payments raises world prices by an average of 1.6 cents, while farm prices fall by 2.5 cents per pound. These alleged effects are higher than those found by others. For example, in 1999, when Congress was debating whether to reauthorize Step 2 subsidies, the FAPRI analyzed the effects of reauthorization for the Senate Committee on Agriculture, Nutrition and Forestry. Their analysis estimated an average Step 2 payment of 5.3 cents per pound, resulting in an increase of the US spot price by 4 cents and a fall in the world cotton price of less than 0.5 cents.
97 Subsidies Agreement, Article 15.2 (“With regard to the effect of subsidized imports on prices, the investigating authorities shall consider whether . . . the effect of such imports is otherwise to depress prices to a significant degree or to prevent price increases, which otherwise would have occurred, to a significant degree.”).
98 The United States has addressed the disconnect between low world prices and the level of subsidy in Exhibit US 44.
99 Exhibit US 52.
100 Statement of Mr. Christopher Ward at the Second Session of the First Panel Meeting, para. 6 (emphasis added). Mr. Ward goes on to state: “Based on my discussions with many producers relating to Mato Grosso cotton production and revenue, I know that most other producers in State of Mato Grosso were in the same situation as we were during the 1999 2002 period.” Id. (emphasis added).
101 Second Written Third-Party Submission of Argentina, 3 October 2003, paragraph 4.
103 Further Submission of the United States, paragraph 80.
104 Brazil's First Submission to the Panel, 24 June 2003.
105 Brazil's Further Submission to the Panel, 9 September 2003, Section 22.214.171.124.
106 Further Submission of the United States, Section IV.B and C.
107 Agreement on Subsidies and Countervailing Measures.
108 "Further Third Party Submission of New Zealand" (3 October 2003), para. 2.09: "Brazil's argument is not that declining cotton prices were due solely to the impact of the United States subsidies. Nor does Article 6.3(c) require that to be the case … ".
109 Second Written Third-Party Submission of Argentina, 3 October 2003, paragraphs 21, 26 and 27.
110 Further Submission of the United States, paragraphs 17 and 80.
111 Second Written Third-Party Submission by Argentina, paragraphs 34-36.
112 Further Submission of Brazil, Section 126.96.36.199.1.
124 Further submission of the United States, paragraph 46.
125 Second Written Third-Party Submission by Argentina, 3 October 2003, paragraphs 11 and 12.
126 Idem, paragraph 5.
127 Further Submission of the United States, 30 September 2003, paragraph 46.
128 Written Third-Party Submission by Argentina, 15 July 2003, paragraphs 17 and 18.
129 According to a recent ICAC study, the cost of production in the United States was US$0.81 per pound of cotton in the marketing year 1999. In contrast, as pointed out by Brazil in paragraph 32 of its submission, Argentina's production costs averaged 59 cents per pound of cotton. "Cotton: World Statistics", Bulletin of the International Cotton Advisory Committee, September 2002 (Annex BRA-9).
130 "Argentina: Economic Injury to the Cotton Sector as a Result of Low Prices", Working Group on government Measures of the International Cotton Advisory Committee, 2002. Written Third-Party Submission by Argentina, 15 July 2003, paragraph 22.
131 Further submission of the United States, 30 September 2003, paragraphs 71 to 75.
132 Idem,paragraph 82.
133 Further Submission of Brazil, 9 September 2002, Section 188.8.131.52.1.
134 Second Written Third-Party Submission by Argentina, 3 October 2003, paragraph 34 to 36. See also Further Third-Party Submission of New Zealand (3 October 2003), paragraph 2.21: "