BRASILIA/WASHINGTON The United States will pay Brazilian cotton producers $300 million to settle a decade-old dispute over cotton subsidies, two officials familiar with the settlement said on Tuesday, the first concrete step to repair ties hurt by an espionage scandal.
The agreement will be formally signed on Wednesday morning in Washington after Brazilian Agriculture Minister Neri Geller and Foreign Minister Luiz Alberto Figueiredo traveled to the U.S. capital to finalize details.
“Everyone is relieved that this case is finally being put behind us and that Brazil and the U.S. can now move on to the many common interests that unite us," one of the officials familiar with the settlement said.
In exchange for the one-off payment to the Brazil Cotton Institute, or IBA, Brazil agreed not to take any further trade measures against the United States. The official said the United States could implement a new farm bill without concerns about retaliation.
"When you consider what was on the line for both sides, this is a win-win deal," he said.
U.S. Trade Representative Michael Froman and Secretary of Agriculture Tom Vilsack are expected to sign the agreement for the U.S. side.
Relations between the United States and Brazil were strained last year by revelations the National Security Agency spied on President Dilma Rousseff with secret Internet surveillance programs made known in documents leaked by former NSA analyst Edward Snowden.
Diplomatic talks on a wide range of subjects - from double taxation to visas aimed at facilitating business between the Western Hemisphere's two largest economies - ground to a halt.
Rousseff canceled a state visit to Washington and demanded an apology from President Barack Obama. The United States said publicly it regretted the incident, but has stopped short of issuing a formal apology.
The cotton breakthrough comes just days before Sunday's presidential election in which Rousseff's two main rivals have vowed to rebuild ties with Washington to open markets for exporters in a country hit by recession.
In 2004, Brazil won a challenge against U.S. cotton subsidies at the World Trade Organization, giving it the right to impose $830 million in sanctions against U.S. products. Brazil agreed to suspend the penalty if the United States paid into an assistance fund for Brazilian cotton farmers.
The United States stopped paying the monthly compensation in October last year due to budget disagreements in Congress, prompting the Brazilian government to threaten to slap higher tariffs on U.S. products. The retaliation would have deepened diplomatic tensions between both countries, officials and experts said at the time.
Reports earlier this year said the United States was willing to pay at least $460 million in compensation to Brazilian growers to end the dispute, according to Brazilian diplomatic documents obtained by hackers and leaked to the local press.
U.S. Vice President Joe Biden traveled to Brazil and met with Rousseff in June in hopes of turning the page on the spying dispute. He assured her that Washington has changed the way it conducts electronic surveillance.
In another sign that relations are starting to move forward, Brasilia and Washington signed a tax information exchange pact last week that could lead to a tax treaty to avoid double taxation of U.S. companies operating in Brazil and Brazilian businesses in the United States.
(Editing by Anthony Boadle, Ken Wills, Matthew Lewis and Eric Walsh)