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A preliminary World Trade Organisation (WTO) ruling in a dispute between Brazil and the United States over cotton subsidies, the first ever challenge to the domestic farm policy of a rich state, is expected on Monday.
Although the verdict is confidential and sent only to the two parties, WTO rulings have quickly been made public in the past by one side or the other.
The decision could have big implications for the farm policies of both the United States and the European Union as well as for current free trade negotiations at the Geneva-based WTO.
Brazil accuses the United States of breaking world trade rules by paying out more subsidies to its cotton farmers than are allowed and also by giving export subsidies to manufacturing industry.
According to the Agreement on Agriculture, the pact that regulates world trade in farm goods, countries must cap subsidy programmes for any crop at their 1992 levels.
And provided the totals are below that ceiling, a so-called Peace Clause, agreed between WTO states, prevents any complaint about the type of subsidy being used.
For the United States, the limit stands at some $1.6 billion a year for cotton.
But Brazil argues that aid to the United States' some 25,000 cotton farmers regularly exceeded that figure in 1999-2001, the years covered by the complaint.
The result was sharply higher US production and sharply lower international prices, which hurt Brazil and other cotton producers, notably in West Africa.
However, subsidy rules are complicated. Limits only apply to those programmes considered to distort trade by encouraging farmers to produce more of a given crop at prices lower than they would otherwise be able to accept.
The United States does not dispute the existence of the additional programmes, but it says that they are not linked directly to production.
In WTO parlance they are "de-coupled" and therefore not "trade-distorting", and should not count in the overall total. As a result, Washington says the peace clause applies.
Brazil estimates that it lost $600 million in the 2001 marketing year alone as a direct result of US cotton policy. Despite falling world prices, US output has risen, accounting for 37 percent of world cotton production in 2001, up from 24 percent in 1996.
The case could have significant impact on the agricultural policies of both the United States and the European Union, both of which make use of "de-coupled" payments they say do not have any direct influence on what a farmer plants and therefore should be excluded from scrutiny by the WTO.
Other US produce, such as soyabeans, rice, wheat and maize could be vulnerable to similar challenges at the WTO.
And the decision would reverberate through global free trade talks currently underway at the WTO, of which farm reform is a key aspect.
Both the United States and the European Union want to able to make greater use of these so-called "de-coupled" programmes to help meet demands for fresh limits on farm subsidies.

Copyright Reuters, 2004

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