WASHINGTON — As Brazil pressured the Bush administration to comply with a World Trade Organization ruling urging the elimination or modification of cotton subsidy programs, a key Senate committee proposed a legislative package that would end one of the payment programs by mid-2006.

Brazil filed a request Thursday with the WTO’s Dispute Settlement Body 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 finding that U.S. cotton subsidies breached global trade rules.

Meanwhile, the Senate Agriculture, Nutrition and Forestry Committee, in an effort to comply with the WTO, has drafted a proposal to eliminate U.S. “Step 2” payments, which aid cotton farmers, textile mills and exporters, by the end of the current marketing year next July 31.

The fight stems from a September 2002 WTO complaint filed by Brazil alleging that U.S. cotton subsidies depressed global cotton prices and were illegal. The Bush administration sent a proposal to Congress to eliminate or modify payments for marketing loans, user marketing (Step 2), market loan assistance and counter-cyclical payments.

The Senate committee included its Step 2 proposal in a larger budget reconciliation package that has not been voted on in committee.

“We want the U.S. to either withdraw the subsidies or the adverse implications that are causing serious prejudice” to Brazilian cotton farmers, Roberto Azevedo, Brazil’s general coordinator for trade disputes, said in Geneva. But Azevedo said Brazil is interested in trying to work this out with the U.S. in the “best possible way.”

U.S. cotton growers, merchants and textile mills stand to lose millions of dollars in subsidies with the abandonment or modification of the programs.

“It has been the position of the industry to maintain the [Step 2] program through the life of the farm bill, through July 31, 2008,” said Neal Gillen, executive vice president and general counsel of the American Cotton Shippers’ Association. “However, the realities of the situation are such that members of Congress are concerned about possible retaliation by Brazil and wanted to get it behind them.”

Gillen said textile mills would take the biggest hit from the elimination of Step 2. Removing the federal program from the equation in midstream, after mills have committed to cotton contracts, has many executives concerned.

This story first appeared in the October 10, 2005 issue of WWD. Subscribe Today.

“Textile mills will undoubtedly suffer the most,” Gillen said. “They will lose an assistance package that has been very helpful for some years.”

Payments to textile mills, cotton farmers and exporters 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 figures from the U.S. Department of Agriculture.

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