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Brazilian Retaliation

Fall 2010 In Situ

Brazilian Retaliation

Brasilia weighs a possible next move against American IP

Since the dawn of the Marrakesh Agreement establishing the World Trade Organization (WTO), one of its most contested aspects has been the implementation of decisions originating from disputes between member countries. This year, Brazil has inaugurated a new level of what is technically known as suspension of concessions or obligations (informally called ‘retaliation’ or ‘sanctions’) under the Dispute Settlement Understanding of the WTO, by implementing national legislation that allows the country to suspend its obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Quaere: As Brazil’s progresses to become the fifth largest economy in the world, can its mixed messages about the importance of IP protection weaken its ability to promote local and foreign investment in innovation, thereby undermining the very fuel that drives the country’s growth?

Naturally, when the Dispute Settlement Body of the WTO rules in favour of a country (as it has in the Brazil-US cotton case, or DS 267), retaliatory measures against the losing country are rightfully called for when implementation of the ruling is not readily available and voluntary. Under certain circumstances, these retaliatory measures can be based on concessions and obligations from a treaty other than the one that gave birth to the original trade controversy. For example, when a country defends impugned health regulations under the Agreement on Sanitary and Phytosanitary Measures, the complaining country may seek authorization from the WTO to retaliate under a completely different trade agreement, such as TRIPS, by suspending the IP rights of nationals of the opposing member.

Based on such settlement rules, the Brazilian government implemented legislation permitting for the suspension by Brazil of IP rights of nationals of WTO member countries anytime that voluntary compliance with a decision by the Dispute Settlement Body is not followed, and when cross-retaliation is authorized by the Dispute Settlement Body of the WTO. As a result, Brazil entered into a collision course with the US; that is, it took serious steps to prepare cross-retaliation against US nationals in the area of IP.

In view of the non-compliance with DS 267, which ruled illegal the structure of subsidies given to cotton producers in the US, the WTO allowed Brazil to impose retaliatory duties against the US for a total of US $830 million. From this amount, Brazil was expressly authorized to impose duties in the form of cross-retaliation measures of up to US $270 million. The Brazilian government signalled that it would impose cross-retaliation measures through the suspension of IP rights, based on the WTO’s TRIPS agreement.

Evidently, the threat of undermining the IP rights of foreign companies places tremendous political pressure on the specific targeted country (in the event, the US) for compliance with the original ruling. However, the US and other countries with innovation-based economies may well feel threatened by the possibility that any future trade dispute with Brazil could lead the latter to impose such sanctions on their IP rights – even if the original trade dispute relates to, say, an exotic fruit. The resulting fear in Brazil is that of lost short- and medium-term foreign investments in the innovative sectors, based on distrust of, or anxiety about, the country’s IP system. In other words, by disturbing the certainty of the set of legal rights that fosters commercial creativity and progress, Brazil could end up rapidly consuming the very fuel that has been driving the country’s growth.

Brazil’s success in the WTO dispute in the US cotton case requires the country to strike a delicate balance, as the application of the retaliatory sanctions would, in the end, have a greater negative impact on Brazil than on the US. While Brazil clearly has the right to retaliate, it should always privilege a negotiated solution. It did this, happily, in coming to a temporary agreement with the US on financial compensation for Brazil in exchange for postponement of the cross-retaliatory measures until such time as the US reviews its cotton subsides policy. Such impure compromises are the necessary backbone of the world’s free-trading infrastructure.


Mr. Santos is a partner and heads the Intellectual Property Group of Siqueira Castro Advogados in Sao Paolo, Brazil. Ms. Bittencourt is a senior associate with the Intellectual Property Group of Siqueira Castro Advogados.

(Photograph: iStockphoto)

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