By  on November 7, 2005

WASHINGTON — The House and Senate passed budget packages Thursday that would eliminate a cotton subsidy program ruled illegal by the World Trade Organization.

In the House, the budget committee also voted to repeal another law deemed illegal by the WTO because it compensates U.S. companies hurt by undervalued imports dumped in the domestic market.

The Senate and House legislation will now go to a joint conference committee.

The Senate approved a broad package to slash $35 billion from the federal budget over the next five years by cutting spending programs such as agriculture supports, prescription drugs and student loans. It would also eliminate so-called Step 2 payments by mid-2006 that aid cotton farmers, textile mills and exporters, which stand to lose millions of dollars in subsidies. Payments to the sector under the program totaled $2.4 billion between 1995 and 2004, according to the Environmental Working Group, a consumer advocacy group opposing agriculture subsidies, based on Department of Agriculture figures.

The move by Congress stems from a WTO case brought by Brazil in September 2002, which it eventually won, alleging U.S. cotton subsidies depressed global cotton prices and were illegal. Brazil filed a request in October for authorization to retaliate with more than $1 billion in punitive sanctions against the U.S. because of its failure to respond by Sept. 21 to the panel's findings that U.S. cotton subsidies breached global trade rules.

"There was a lot of sympathy from members to continue the program, but they are in the minority in the House and Senate," said Neal Gillen, executive vice president and general counsel of the American Cotton Shippers' Association. "They understand the administration's attempts to comply with the WTO ruling."

The House Budget Committee voted to approve its broad budget-savings package that contains the same provision to eliminate the Step 2 payments by Aug. 1, along with repealing the trade law known as the Byrd Amendment. The repeal is expected to generate opposition in Congress. Shortly after the WTO found the subsidies to be illegal, 70 senators sent a letter to President Bush opposing the ruling and asking that the issue be addressed as part of the Doha Round of global trade talks.

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