WASHINGTON, Oct. 1, 2014 -- Brazil has agreed to drop its decade-old complaint before the World Trade Organization that the U.S. is unfairly subsidizing its cotton industry in exchange for a one-time payment of $300 million and other concessions.

The settlement was announced today by Agriculture Secretary Tom Vilsack an U.S. Trade Representative Michael Froman.

“Through this negotiated solution, the United States and Brazil can finally put this dispute behind us,” Vilsack said in a news release.  “Without this agreement, American businesses, including agricultural businesses and producers, could have faced countermeasures in the way of increased tariffs totaling hundreds of millions of dollars every year. This removes that threat and ensures American cotton farmers will have effective risk management tools.”

Brazil had threatened to impose more than $800 million in sanctions against U.S. products after the WTO twice ruled in its favor on its 2004 complaint. The South American country agreed to hold up on imposing any levies if the U.S. paid $147 million annually into an assistance fund for Brazilian cotton growers. Brazil renewed the threat after the U.S. stopped paying the compensation late last year because of budget squabbles in Congress, and again with the passage of the 2014 Farm Bill, which cut direct payments to cotton farmers but added several layers of insurance protection.

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The $300 million one-time payment will be used to provide technical assistance for Brazilian cotton farmers and to help them build capacity, according to a memorandum of understanding (MOU) between the two countries. In exchange, Brazil promised to relinquish all rights to countermeasures against U.S. trade and to forego any challenges to U.S. cotton programs for the five-year life of the 2014 Farm Bill.

The MOU also includes new rules governing the fees and term length for loan guarantees under USDA’s GSM-102 Program, as well as limitations on new disputes against U.S. cotton domestic support programs and the GSM-102 program. 

The National Cotton Council (NCC) applauded the agreement.

“Officials from the Office of the U.S. Trade Representative and the Department of Agriculture are to be commended for reaching a comprehensive agreement that brings the dispute to a close,” NCC Chairman Wally Darneille stated in a news release. “With the conclusion of the case, the U.S. cotton industry can bring a renewed focus to the challenges that lay in front of us.”  

Darneille noted that the 2014 Farm Bill includes several changes that make U.S cotton policy “more market-oriented, with the primary safety net conveyed through insurance products that must be purchased by the producer.”

The American Farm Bureau Federation also welcomed the announcement.

“This agreement brings certainty to cotton growers and all U.S. farmers that the current structure of commodity programs will remain intact, AFBF President Bob Stallman said. “Farm Bureau worked diligently with Congress to ensure that the nation’s safety net programs for agriculture were WTO compliant. Today’s agreement validates that approach.

The agreement comes days before Sunday’s presidential election in Brazil in which challengers to President Dilma Rousseff have vowed to rebuild ties with Washington weakened by reports that the U.S. had spied on Rousseff and to open markets for exporters in a nation hit by recession.

After the spying revelations, in documents released by former National Security Agency analyst Edward Snowden, Rousseff canceled a state visit to Washington and diplomatic relations between the U.S. and Brazil nearly came to a halt.


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This story was updated at 3:25 p.m.