Trade body rules against U.S. on cotton subsidies

The World Trade Organization has found that the United States failed to scrap illegal subsidies paid to American cotton growers, a ruling that could open the door to billions of dollars in Brazilian trade sanctions against the U.S., trade officials said Monday.

The result is a major victory for Brazil’s cotton industry and for African countries that have claimed to have been harmed by the American payments.

The three-member WTO compliance panel upheld its findings from an interim report released in July, said Roberto Azevedo, the Brazilian Foreign Ministry’s trade chief.

The office of the U.S. Trade Representative in Washington confirmed the ruling. Washington can still appeal it.

“The panel found that the changes made by the United States were insufficient to bring the challenged measures – certain support payments under the 2002 Farm Bill and export credit guarantees – into conformity with U.S. WTO obligations,” it said in an e-mailed statement Monday.

“We are very disappointed with these results.”

The U.S. has argued that it sufficiently overhauled its cotton program when it scrapped two export-credit guarantee programs and last year repealed the so-called Step 2 cotton marketing program that made payments to exporters and domestic mill users as compensation for buying higher-priced American cotton.

But Brazil said Washington’s continued support for American cotton producers ensured artificially high production and export levels, hurting Brazilian and African producers.

Brazil has reserved the right to impose annual sanctions of as much as $4 billion on the United States, but it would probably seek less in retaliatory measures because the U.S. has removed some of the offending subsidies.

If a likely appeal also goes against U.S. cotton programs, Washington can challenge the level of retaliation the WTO authorizes.

Brazil has said it would target U.S. goods, as well as trademarks, patents and commercial services, under provisions in the global commerce body’s intellectual property and services agreements.

The announcement that Brazil was bringing the case back before WTO arbitrators was made shortly after the July 2006 collapse of global trade talks, which aim to add billions of dollars to the world economy and help poorer countries develop their economies through new trade flows.

Brazil was one of several countries that blamed the United States for the impasse as differences over barriers to farm trade and manufacturing proved unbridgeable. The two countries have repeatedly clashed as the talks have failed to make progress.

Critics of the subsidies say they drive down prices, making it impossible for small farms to compete in international markets, and more difficult for poorer countries to develop their economies by selling their agricultural produce abroad.

A WTO-proposed draft released in July calls on the U.S. to make an 82% cut in trade-distorting handouts to American cotton farmers as part of a new global trade pact.

Washington has rejected the cuts, which were first proposed by the African cotton-growing countries claiming to have been most harmed by the U.S. subsidies: Benin, Burkina Faso, Chad and Mali.