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Abstract

On the day before Brazil was to start imposing retaliatory sanctions against the US 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 8-year-long trade dispute. In this paper, we explore the economy wide 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 US. 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 US, a case of shooting oneself in the foot to shoot at the other person’s foot.

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