September 1, 2006

U.S. delays WTO probe into its cotton subsidies

By Richard Waddington

GENEVA (Reuters) - The United States on Friday delayed a
World Trade Organization (WTO) probe into whether it has
dismantled cotton subsidies ruled illegal by the Geneva-based
trade referee.

Brazil accuses Washington of failing to abide by a landmark
2004 verdict in which the WTO decreed part of the multi-billion
dollar cotton program violated trade rules and demanded
sweeping reform.

But WTO rules allow members to block an initial request for
a probe, although a trade panel is automatically set up at the
second time of asking. Brazil has not said when it will make
its second request.

"Brazil considers that with respect to some of the ...
recommendations and rulings, the United States has adopted no
implementation measures at all, and that the implementation
measures it has adopted fall far short of compliance," it said
in a statement.

But Washington, which said it was "disappointed" at
Brazil's request, told the WTO that changes adopted to cotton
programs had brought them into line with trade rules.

"The Brazilian request is unnecessary and without basis,"
the United States said in a statement to the WTO.

An eventual investigation, to be ordered by the WTO's
Dispute Settlement Body (DSB), will take at least 90 days and
could see Brazil winning the right to levy billions of dollars
of retaliatory sanctions against U.S. goods.

The next meeting of the DSB is set for September 28.

Although Brazil has not said there is a link, the decision
to press ahead with the request for a probe followed the
suspension in late July of the WTO's Doha round of free trade

The near five-year-old talks broke down over lack of
progress in slashing rich nation agricultural tariffs and
subsidies, and trade diplomats and experts warned it could lead
to more disputes being brought to the WTO.

"It should be little surprise that a new global trade
agreement -- the Doha round -- has stalled considering that the
United States has failed to abide by rules of the last
agreement," said Gawain Kripke, a senior policy adviser for aid
agency Oxfam.

The U.S. Congress has repealed the 'Step 2' cotton program
putting an end to export subsidies and import substitution
subsidies provided through aid to U.S. cotton millers buying
domestic rather than foreign cotton.

But Brazil said that this left a series of other programs,
ranging from so-called counter-cyclical payments to marketing
loans and other assistance which it argues are also covered by
the WTO ruling.

It has said that it could seek WTO authorization for some
$4 billion in additional levies on U.S. goods if Washington is
found to be at fault again.

According to Oxfam, U.S. subsidies to the country's 25,000
cotton farmers totaled $5 billion in 2005 for a crop that was
worth less than $4 billion.

"These subsidies help to depress world cotton prices,
hurting developing country cotton farmers including more than
20 million African farmers," the agency said in a statement.