U.S., Brazil settle cotton subsidy dispute for $300 million

WASHINGTON (Reuters) - The United States and Brazil on Wednesday agreed to end a decade-long dispute over subsidies paid to U.S. cotton growers, taking steps to soothe diplomatic relations strained by an espionage scandal.

An employee works at a cotton processing station at Falavinha farm in Deciolandia, in the central Brazilian state of Mato Grosso, September 7, 2011. REUTERS/Paulo Whitaker

Under the deal, the United States will make a $300 million, one-time payment to the Brazil Cotton Institute and Brazil agreed not to take any further trade measures against the United States, the U.S. Trade Representative’s office said in a statement.

“Today’s agreement brings to a close a matter which put hundreds of millions of dollars in U.S. exports at risk,” U.S. Trade Representative Michael Froman said.

“The United States and Brazil look forward to building on this significant progress in our bilateral economic relationship.”

Brazilian Agriculture Minister Neri Geller said the agreement was good for both countries and would improve relations.

“The compensation will be invested in technology and logistics involving cotton production,” he told Reuters.

The U.S. National Cotton Council welcomed the agreement, noting it avoided retaliation by Brazil against U.S. exports.

“With the conclusion of the case, the U.S. cotton industry can bring a renewed focus to the challenges that lay in front of us,” NCC Chairman Wally Darneille said.

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 due to budget disagreements in Congress, prompting the

Brazilian government to threaten to slap higher tariffs on U.S. products.

Relations between the United States and Brazil were also strained last year by revelations that the National Security Agency spied on President Dilma Rousseff.

Diplomatic talks on a wide range of subjects - from double taxation to visas aimed at facilitating business between the hemisphere’s two largest economies - ground to a halt.

Reporting by Krista Hughes; Additional reporting by Alonso Soto in Brasilia and Chris Prentice in New York; Editing by Dan Grebler