Monday, April 26, 2004

The World Trade Organization yesterday said the United States is breaking international trade rules when it pays its farmers to produce cotton, officials in Brasilia, Brazil, and Washington said.

The ruling, a preliminary decision, would be the most serious attack on agriculture subsidies at the WTO to date if it broadly favors the South American nation.

The WTO, Brazil and the United States would not release the decision, but in Brasilia, officials held a press conference to say they were “satisfied” with the WTO dispute-resolution panel’s report.

“They agreed with some of our arguments,” said Clodoaldo Hugueney, a top economic official with Brazil’s Foreign Ministry.

A U.S. trade official said U.S. farm programs are consistent with WTO rules.

“We have serious concerns with aspects of the panel report. We will be closely reviewing the report, and if the final report remains unchanged, we will appeal,” said the official, who spoke on the condition of anonymity.

The United States pays farmers about $3 billion a year to grow and market cotton, a practice that helps American farmers sell their product overseas.

Brazil complained that the subsidies caused overproduction and depressed international prices, limiting its ability to compete. The WTO in March 2003 convened a panel to hear the case.

Yesterday’s ruling will not be finalized until mid-June, although preliminary decisions generally don’t change from the time they are given to governments until they are publicly released.

A U.S. appeal would give the Bush administration a chance to present its case to another set of judges. The appeals process also would give the United States several months before it would face any consequences, such as trade sanctions, and could lead to a reversal of yesterday’s decision.

The case has been watched closely as the first major attack by developing nations on rich-nation subsidies. The dispute undermined global-trade talks last year and contributed to a collapse in negotiations during a summit in Cancun, Mexico, in September.

A Brazilian official, who did not want to be named, yesterday said the decision would have an impact on the current round of trade negotiations, resumed this year in Geneva.

Most rich countries offer some support to farmers, with the European Union, Japan and the United States leading the way. South Korea, Norway, Switzerland and Iceland also offer significant payments to producers.

U.S. agricultural subsidies were worth an estimated $18.7 billion in fiscal 2003. The 15-nation European Union annually spends about $50 billion, nearly half its annual budget, on its common agricultural policy and rural development.

Cotton subsidies have drawn especially close scrutiny. Benin, Burkina Faso, Mali and Chad — all poor, largely agrarian countries in Africa — last year led a drive at the WTO to eliminate cotton subsidies.

“Low prices on world cotton markets are driving 10 million Africans deeper into poverty,” Oxfam, a poverty-fighting group, said last month. The group blamed overproduction and the dumping of exports by the United States, caused by subsidies, for slumping prices.

• This article is based in part on wire-service reports.

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