US loses WTO cotton subsidy case

Cotton subsidies are accused of perpetuating poverty

The World Trade Organisation has dealt the US a significant blow in a key trade battle by ruling that subsidies to its cotton farmers were unfair.

Brazil had complained that US payments kept world cotton prices too low and gave its producers an edge over less developed and less well-funded rivals.

It is the first time that a country's domestic farm subsidies have been challenged and may prompt more cases.

The US has said it will appeal against the decision unless it is changed.

According to Brazil's complaint, the US paid its farmers almost $4bn (£2.2bn) in cotton subsidies between 2001 and 2002 for a crop that was worth $3bn.

Brazil said this led its farmers to lose sales worth $600m in that period because US farmers could sell cotton at less than cost price.

In focus

Trade, and especially subsidies and import tariffs, has been in the spotlight during past years as a global economic slowdown led to job losses and prompted calls for greater protection of domestic industries.

This is a war that must continue Roberto Azevedo, legal advisor to Brazil

WTO talks in Cancun, Mexico, collapsed in 2003 amid allegations from all sides of intransigence and unrealistic demands.

The US more recently became embroiled in a spat with the European Union and Asia over steel tariffs, and it has also accused China of keeping its currency weak to boost exports.

Trade also has become one of the platforms on which the upcoming US election looks set to be fought.

Democrat challenger John Kerry said on Monday that the US should be more aggressive in filing unfair trade cases at the WTO.

Great leveller

Brazil's top negotiator at the WTO, however, said that Tuesday's ruling over cotton could lead to a rebalancing of global trade, with poorer countries getting a better deal.

For some campaigners there is no room for negotiation

"The WTO agreed with a substantial part of Brazil's arguments," Clodoaldo Hugueney explained.

This WTO panel "is going to show how important it is that you really change this policy of developed nations," he added.

Roberto Azevedo, a legal adviser to Brazil's foreign ministry, was more forthright saying that "this is a war that must continue".

The US, however, stands by its policy and said it has "serious concerns with aspects of the panel's report".

The subsidies, it says, are within WTO limits. It has until 10 May to appeal against the decision.