On June 18, upholding a Brazilian complaint, World Trade Organization judges ruled that U.S. cotton subsidies are illegal. Brazil alleged that the United States maintained its place as the world's second-largest cotton grower and largest exporter due to $12.5 billion in subsidies paid between August 1999 and July 2003.

Woody Anderson, National Cotton Council chairman, said it would be unlikely the WTO decision will affect U.S. subsidies immediately. “It's far too premature to speculate on any such changes. We must review the (decision) and wait for the appeal process to conclude before we can begin to evaluate what, if any, changes need to be made to the U.S. cotton program.”

The case is important because it is the first where prosperous nations' agriculture subsidies have been targeted. With Brazil's win, say many trade analysts, it's expected that more disputes over agriculture subsidies will occur.

The ruling wasn't a surprise — it simply affirmed a preliminary decision in April. At that time, the WTO said the annual $3 billion-plus payments to U.S. cotton farmers were unfair because the subsidies exceed commitments made a decade ago. The WTO also found that $1.6 billion of U.S. export credits (including price support for soybeans and corn) must be removed.

Following the April preliminary decision, the Bush administration promised an appeal. It continues to do so: “U.S. farm programs were designed to be and are fully consistent with WTO rules,” said Richard Mills, a spokesman for the U.S. Trade Representative.