Brazil issues warning to U.S. over WTO cotton ruling

WASHINGTON/BRASILIA (Reuters) - Brazil on Friday pushed the United States to bring cotton subsidies in line with world trade rules, threatening retaliation if the world’s largest cotton exporter does not comply with a new WTO ruling.

“We expect the United States to comply fully and immediately ... Brazil reserves its right to retaliate,” Roberto Azevedo, a top Brazilian negotiator, said in Brasilia.

Brasilia issued its warning after a World Trade Organization panel found certain supports for U.S. cotton producers continued to violate trade rules, despite changes Congress made last year after an WTO earlier ruling,

“Some of the main domestic programs are still in place,” Azevedo said.

The landmark WTO ruling has strengthened the case of critics who see the generous U.S. subsidies depressing cotton prices around the world. It also has highlighted a push from poor cotton-growing countries in West Africa to secure subsidy reform in the Doha round of world trade talks.

The news came the same day that the U.S. House of Representatives approved a new five-year blueprint for U.S. farm policy, including cotton subsidies.

According to a report from aid and advocacy group Oxfam, eliminating all cotton subsidies in the United States -- which accounts for 40 percent of world exports -- would increase income for some African families by up to $114 a year, a 6 percent increase.

But the Bush administration vowed to defend farmers in an industry that is heavily dependent on government assistance. It believes U.S. subsidies do not sway world prices heavily.

“We have been working very, very hard to try to protect our cotton producers under the current system,” Agriculture Secretary Mike Johanns told reporters on Friday.

The panel’s interim decision can be appealed by either party; a final, also confidential ruling is due on October 1.

The dispute process is likely to end by February 2008 with the United States agreeing to implement the ruling or Brazil requesting authorization to apply trade sanctions.


The ruling rankled official Washington. Sen. Saxby Chambliss, the ranking Republican on the Senate Agriculture Committee, promised to respect world trade rules, but said he would “not gut the safety net for cotton producers despite calls by Brazil and others to do so.”

“To say the U.S. cotton program is causing harm to Brazil or any other country ignores the simple facts and will further enforce doubts farmers and ranchers have in the dispute settlement process in the WTO,” Chambliss said.

The farm plan passed by the U.S. House includes a contentious proposal that would introduce a payment for U.S. cotton mills. Critics argue that this mimics a measure repealed in 2006.

While the payment does not explicitly reward use of U.S. cotton, the United States imports only a small fraction of the cotton used by domestic mills.

The U.S. Cotton Council, an industry group, called the ruling “incomprehensible,” pointing to cotton prices which recently hit a 3-1/2 year top, and reductions in acreage and production since Congress tinkered with subsidies.

The ruling could also renew pressure for further U.S. concessions on farm subsidies in the Doha talks.

Brazil has been at the forefront of a group of developing countries, including India and South Africa, pushing wealthy nations to liberalize farm trade; the United States contends they need to reduce tariffs.