Reuters news http://africa.reuters.com/business/news/usnBAN857276.html reported yesterday that, "The United States is not doing enough to bring its support for cotton into line with international trading rules, the World Trade Organisation (WTO) said on Tuesday.

"The published ruling by the WTO appeal body opens the way for Brazil, which brought the original case against the United States in 2002, to seek billions of dollars in sanctions against Washington."

(A summary of the 2002 Cotton case (DS267) is available at this WTO webpage
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm. The findings and conclusions of yesterday's WTO report of the compliance panel on Brazil's complaint against the U.S. can be viewed here http://www.wto.org/english/tratop_e/dispu_e/267rw_conc_e.pdf , while the full report of the compliance panel is available here http://www.wto.org/english/news_e/news07_e/267rw_e.htm.)

The Reuters article indicated that, "The appeal court's findings had already been circulated confidentially in an interim report in July and then finally in October http://www.farmpolicy.com/?p=511, but were made available to the public for the first time on Tuesday."

In addition, the article noted that, "Only on Monday, the WTO launched an investigation into U.S. farm support at the request of Brazil and Canada http://www.farmpolicy.com/?p=570."

The Associated Press http://www.latimes.com/business/la-fi-cotton19dec19,0,6658226.story reported today that, "Brazil has reserved the right to impose annual sanctions of as much as $4 billion on the United States, but would probably seek less in retaliatory measures because the U.S. has removed some of the offending subsidies.

"The office of the U.S. trade representative in Washington said it was considering a final appeal.

"'We are very disappointed with the compliance panel's findings,' spokeswoman Gretchen Hamel said. 'We continue to believe that support payments and export credit guarantees under our programs are fully consistent with our WTO obligations.'

"Despite repeated legal setbacks, Washington looks set to continue the payments. The Senate joined the House on Friday in approving a new $286-billion farm bill http://www.farmpolicy.com/?p=568  that would leave cotton programs largely intact for the next five years."

A separate Reuters article from yesterday (via DTN
http://www.dtn.com/forms/ag/try/dtnonline/ ), stated that, "The compliance panel concluded in its 204-page report that 'U.S. marketing loan http://www.ers.usda.gov/Briefing/FarmPolicy/2002malp.htm and counter-cyclical payments http://www.ers.usda.gov/Briefing/FarmPolicy/CounterCyclicalPay.htm have led to an increase in U.S. production and exports of cotton that have then suppressed world prices.'

"The panel ruled that the United States, the world's largest cotton exporter, remained in violation of world trade rules even after it repealed http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1RD?printable=true&co ntentidonly=true&contentid=2005/07/0242.xml  its 'Step 2' payment to cotton mills and exporters in August 2006."

The article noted that, "But cotton prices have been climbing as part of a wider commodity boom and in line with smaller acreage. Prices for the 2007 crop are expected to jump by up to a quarter.

"'The international cotton market is strong, demand is exceeding production, world prices are up, and exports in countries such as India and Brazil are dramatically rising,' the National Cotton Council said in a statement http://www.cotton.org/news/releases/2007/wtodec.cfm .

"'It is not credible to assert that U.S. cotton is currently causing serious prejudice to anyone in the world cotton market,' it said."

With respect to the WTO compliant brought by Brazil and Canada http://www.farmpolicy.com/?p=537 regarding allegations that the U.S. has provided agricultural subsidies that exceed the levels allowed by the WTO, an editorial item posted today at the Los Angeles Times Online http://www.latimes.com/news/printedition/asection/la-ed-farmbill19dec19,0,2 34891.story  stated that, "On Monday in Geneva, the World Trade Organization launched an investigation on behalf of Canada and Brazil into trade-distorting farm subsidies in the United States -- the kind the Senate decided by a 79-14 vote should continue. Though the case could take years to work out, a victory for Canada and Brazil could be extremely costly for the U.S. economy, because those countries and any others that could show they had been damaged by our irresponsible farm policies could be allowed to raise tariffs against U.S. exports to make up for the losses.

"WTO rules contain arcane formulas and categories for subsidies and tariffs, which nations use to protect domestic industries. Certain kinds of subsidies damage trade relationships, while others have little or no effect; the WTO refers to the most damaging kind as 'amber box' subsidies, and harmless ones as 'green box.' The United States is allowed to pay about $19 billion a year in amber farm subsidies under WTO rules, and in recent years has fallen well below that ceiling. But Canada and Brazil claim that's because of an accounting trick: The U.S. is counting many payments http://www.farmpolicy.com/?p=500 that should fall into the amber category as green."

The L.A. Times opinion item indicated that, "A victory for Canada and Brazil might or might not force an overhaul of farm legislation. The WTO could prohibit countercyclical payments, in which case Washington would have to do away with them, or it could simply rule that they have to be counted as amber box subsidies. The second scenario is the scariest. Because the prices of subsidized crops are very high and rising, the government is spending little on countercyclical payments, so the U.S. is unlikely to exceed its $19-billion annual limit even if it keeps the payments in place and counts them toward its amber total. But what happens if Canada and Brazil win and crop prices later drop sharply? That could put the U.S. well above its amber ceiling, which would spark retaliatory tariffs around the world.

"Placating a relative handful of commodity farmers -- who don't need the money and who aren't collecting the countercyclical payments right now anyway -- isn't worth that kind of risk, as Congress would have recognized if it weren't in thrall to the farm lobby. The price for its shortsightedness could get even steeper in the future."