Looming Battle Over Cotton Subsidies

By ELIZABETH BECKER

WASHINGTON, Jan. 23 - An international court case in Geneva could force a resolution of the global battle over agricultural subsidies, which has pitted rich nations against poorer ones for decades.

The case comes as anger in the Third World over the $300 billion in annual farm subsidies provided by the United States, European countries and other wealthy nations has blocked progress on regional and global trade negotiations over the last year.

Brazil now has the first case challenging these subsidies before the World Trade Organization, accusing the United States of breaking trade rules by giving American cotton growers and agribusinesses $1.54 billion in annual subsidies.

American cotton growers - the world's largest cotton exporters - say the case threatens their livelihood and the entire American farm subsidy system. The Brazilians say that the overproduction caused by American subsidies is destroying their export markets and undermining the livelihoods of their farmers.

To the consternation of the administration and the American cotton industry, Brazil has relied almost exclusively on data from the United States Agriculture Department and American agricultural experts to make its case.

This week, in a sign that the United States has grown weary of Brazil's tactics, the administration refused to turn over documents that could bolster its own defense, saying the information would compromise the identity of farmers who receive the money.

Experts on the relatively new W.T.O. dispute settlement system said that refusing to give the information could look suspicious to the three members of the panel hearing the case and bolster the chances of a ruling against the United States. But with so little precedent in this eight-year-old global legal arena, experts are watching the case carefully, anxious about the precedents it will set.

"This is a groundbreaking case - a whole new area - and a tough case for the United States," said Claude E. Barfield, director of trade studies at the American Enterprise Institute and a trade adviser during the Reagan administration. "Even though I am very much opposed to the existing farm subsidies of the United States and Europe, I worry about the potential here for a substantial backlash. This is a highly political and volatile issue."

A decision in the case is expected in early spring.

In closed hearings, Brazil has aggressively asserted that the United States has broken trade rules by using cotton subsidies to grab a larger share of the export market and pushing down world cotton prices, according to documents submitted by both countries.

In moving its battle to the courtroom, Brazil knew that it was raising the stakes. Robert B. Zoellick, the United States trade representative, sent letters this month to more than 100 trade ministers saying he wanted to revive global trade talks that would require progress on these agriculture issues. But a ruling in this case could upset those talks.

"You have to understand we are fed up with these farm subsidies and hearing for 25 years that things will get better," said Aluisio G. de Lima-Campos, an economic adviser at the Brazilian Embassy in Washington. "The only way to deal with it is to turn this into a make-it-or-break-it proposition."

Brazil, along with China, India, South Africa and a dozen other developing nations, altered the global trading balance last year when they banded together at trade talks in Cancún, Mexico, as a bloc determined to reduce rich-nation farm subsidies. They argued that the subsidies not only hurt their exports but also ruined the livelihoods of their poorer peasants and farmers, creating huge social and political problems in addition to the economic ones.

The United States has defended its cotton subsidies, which have helped make it the world's top cotton exporter with more than 40 percent of the world market. Officials argued that Brazilian cotton consistently undercut the price of United States cotton in export markets and that even without the subsidies, American farmers would grow the same amount of cotton and that world prices would be unaffected.

Administration lawyers also said in their submissions that they had kept subsidies at levels determined in earlier agreements and were thereby protected by a "peace clause" that prohibits challenges of the fairness of farm subsidies at the W.T.O.

"Our cotton program complies with our W.T.O. obligations," said Richard Mills, the spokesman for the trade representative.

The United States cotton industry is more fearful and describes the case as the "center of the storm" threatening its livelihood and the entire American farm subsidy system.

"If this panel finds against the United States, it may force radical revisions in U.S. commodity programs," said William A. Gillon, legal counsel to the National Cotton Council, a trade group.

Mr. Gillon and the administration were especially critical of the work of Daniel A. Sumner, professor of agricultural economics at the University of California at Davis and the former assistant secretary of economics at the Agriculture Department during the first Bush administration.

Hired as a consultant by Brazil, Mr. Sumner created an economic model showing that American cotton subsidies did lead United States farmers to plant more cotton, causing increased American exports and pushing down world prices. Had the farmers not received the subsidies, he wrote in a thick submission for the W.T.O. panel, United States exports would have declined on average by 41.2 percent and the world price of upland cotton would have increased by 12.6 percent.

The United States countered with its own submission that critiqued Mr. Sumner's analysis, saying it was flawed and failed to factor in the normal ups and downs of the world market.

Several members of the cotton industry met with Mr. Sumner and told him he was a turncoat.

"One person told me that if this were a military question, what I did would be treason," said Mr. Sumner, who said he stood by his work.

"I don't come at this sort of thing for any reason but that the best possible evidence is entered in this dispute process," he said. "I am a very strong supporter of multilateral efforts, and I want the dispute process of the W.T.O. to be as fair as possible."