WASHINGTON — The U.S. and Brazil have reached an agreement in a long-standing dispute over cotton subsidies that could essentially forestall the imposition of sanctions on U.S. exports until 2012.

This story first appeared in the June 23, 2010 issue of WWD. Subscribe Today.

But analysts were skeptical Congress will ultimately eliminate the cotton subsidies, which were deemed illegal by the World Trade Organization last September, and stave off retaliation from Brazil. Under the long-term framework agreement, the two sides will meet quarterly to discuss a resolution in the context of a new farm bill containing the cotton subsidy programs that Congress will begin negotiating in 2012.

In April, the U.S. and Brazil reached an agreement that averted $800 million in sanctions for 60 days. Under the deal, the U.S. agreed to make some changes in its cotton export and credit guarantee program and to work with Brazil to establish a $147.3 million fund to provide technical assistance and capacity building for the Brazilian cotton industry.

With the 60 days up, Brazil was set again to impose sanctions on Monday on a long list of U.S. exports valued at $591 million, including raw cotton, woven fabric, men’s and boys’ cotton pants and shorts, women’s and girls’ cotton pants and shorts, and some jewelry and beauty products. But the two sides agreed to further discussions and delay the sanctions.

“It gives us time and space to work toward a more permanent answer to the outstanding questions,” said Carol Guthrie, assistant U.S. Trade Representative for public and media affairs.

But economists and trade analysts expressed skepticism that U.S. lawmakers, particularly those from farm states, would agree to fully eliminate the cotton subsidies in the next farm bill, which could prompt Brazil to retaliate. Congress did not eliminate the cotton subsidies in the 2008 farm bill that is set to expire on Sept. 30, 2012.

“I don’t think there will be a full elimination of subsidies in the 2012 farm bill,” said John Baffes, a senior economist in the World Bank’s Development Prospects Group in Washington. “But they will certainly be reduced and probably be more in line with other subsidies for commodities.”

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