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. Last Updated: 07/27/2016

U.S. Bowing to WTO Over Cotton Subsidy

WASHINGTON -- The U.S. administration asked Congress on Tuesday to repeal a federal cotton subsidy to comply with a World Trade Organization ruling against the program.

The move has implications beyond the original dispute between Brazil and the United States. U.S. officials see their response as critical to global trade talks being held by the WTO and its 148 member nations.

"This is a very serious effort," J.B. Penn, undersecretary for the U.S. Agriculture Department's Farm and Foreign Agricultural Services, told reporters. "People are critical of the U.S.; they're critical of our support system. But here is where we're making a very big effort to abide by the rules, and I think it should be seen by the international community as that."

Late Tuesday, Brazil agreed to suspend efforts to retaliate against the United States. Brazil had filed a WTO request for permission to retaliate, but the U.S. trade representative said the request was procedural and, because of the new agreement, would not be approved at a July 15 WTO meeting.

"The parties have jointly agreed to suspend WTO arbitration of the retaliation amount at the earliest possible moment," Richard Mills, a spokesman for trade representative Rob Portman, said in a statement.

The legislative proposal the Agriculture Department sent to Congress would eliminate a cotton marketing program in which the government compensates exporters and domestic mills for buying higher-priced U.S. cotton. Called Step-2, the program is a small portion -- about 7 percent -- of the $3.7 billion the government expects to spend on cotton programs next year. Growers would see a minimal drop in prices and export sales, and use of domestic textiles would shrink slightly if the program were repealed, the department said.

A U.S. analyst expressed doubts that Congress would eliminate the program this year, as the presidential administration has hoped.

"I really do not expect that to happen because these cotton people are very influential, and there's a lot of money at stake," said Gary Hufbauer, an economist and trade expert with the Washington-based Institute for International Economics. "The lobbying will be intense, and I don't think that as a stand-alone [bill], it can happen."