Dispute Settlement at the WTO: Impacts of a No Deal in the US-Brazil Cotton Dispute

On the day before Brazil was to start imposing retaliatory sanctions against the United States in the WTO dispute settlement case regarding unfair domestic and export upland cotton subsidies, the parties have reached a preliminary concession aimed at settling this eight-year-long trade dispute. In this paper, we explore the economywide impacts of a no deal with specific emphasis on intellectual property retaliation in a computable general equilibrium framework. As awarded by a WTO dispute settlement panel, Brazil would have been entitled to $591 million in retaliatory sanctions in goods sectors and $238 million in intellectual property sanctions. We find that retaliation by Brazil would have led to welfare gains for all countries except the United States. Most importantly, however, had Brazil not been allowed to retaliate in the form of suspension of intellectual property rights, the impact of trade retaliation alone would have been negative for both Brazil and the United States, a case of shooting oneself in the foot to shoot at the other person's foot.