US-Brazil Cotton Dispute and the World Cotton Market

US policies for its cotton producers depress world cotton prices, adversely affecting exporters such as Brazil, which filed a complaint to the WTO. Despite WTO rulings in Brazil's favour, meting out the right to enact retaliatory countermeasures, the United States continues to subsidise its cotton farmers. After prolonged negotiations, Brazil and the United States reached an agreement which allowed the United States to pay Brazil to refrain from enforcing the countermeasures. To capture the adverse effects of US policies, theoretical analyses are conducted. The theoretical model is extended by constructing an empirical model of the world cotton market. The adverse effects of US policies on Brazil are estimated and compared to the compensation the United States pays Brazil. © 2014 John Wiley & Sons Ltd.