Brazil suspends retaliation in U.S. cotton row

BRASILIA (Reuters) - Brazil on Thursday suspended retaliatory measures against U.S. goods over a cotton subsidy dispute until 2012, giving the United States more time to tackle the thorny issue of agriculture reform.

The government said a deal agreed upon between the two countries in April to head off up to $829 million in World Trade Organization-sanctioned retaliation against U.S. goods would stay in place until a new U.S. farm bill is passed.

The current U.S. farm law, which contains subsidies for U.S. cotton producers the WTO ruled were too high and therefore illegal, is set to expire on Sept. 30, 2012.

Under the deal, the United States pledged to make some short-term tweaks to its export credit guarantees and give Brazil about $147 million a year in damages for a "technical assistance" fund for cotton growers.

"Brazil doesn't rule out taking countermeasures at any moment," Roberto Azevedo, Brazil's envoy to the WTO, told reporters in Brasilia. "It is just a suspension of this right".

He said Brazil could retaliate at any time if the United States did not uphold the agreement, but added that Brazil had no interest in retaliating.

"This process of negotiation and reform is better than retaliation that doesn't bring benefits to anyone in Brazil's private sector," he said.

The framework agreed to by the two countries immediately removes the prospect of $560 million in Brazilian countermeasures against U.S, exports that had been due to kick in on June 21. Further Brazilian measures against intellectual property rights could have taken effect later.

The deal to avoid retaliation kicks down the road the tough work on subsidy reform to the haggling over the 2012 farm bill by the U.S. Congress -- a body known for taking care of domestic interests.

"This framework agreement provides a way forward as we work with Congress toward a new farm bill in 2012," U.S. Secretary of Agriculture Tom Vilsack said in a statement. "Although it is not a permanent solution, I am pleased that it allows us to maintain our programs while considering adjustments and avoiding the immediate imposition of countermeasures against U.S. exports as a result of the WTO cotton decision."

The WTO ruled last year Brazil had a right to retaliate over U.S. cotton subsidies and its export guarantee program. In April, Brazil delayed for 60 days trade retaliation against the United States after the U.S. government met the conditions Brazil had set for suspending import duties on U.S. goods.

The assistance fund for Brazil's cotton sector will go toward areas including technical assistance, marketing and market research, rather than subsidies for Brazilian farmers.

Brazil had been considering retaliation by lifting patent protections, which would have hurt U.S. makers of pharmaceuticals and chemicals. The WTO has previously granted two other countries the right to retaliate in trade disputes but Brazil would have been the first nation to apply it.

International aid groups have joined calls for the United States to dismantle its cotton subsidies, which they say favor politically well-connected American farmers over farmers in poor countries.

"This agreement lets the U.S. off the hook for now. But with each day that passes with no reform, millions of poor cotton farmers around the world continue to struggle," Oxfam America spokeswoman Laura Rusu said in a statement.

(Additional reporting by Doug Palmer in Washington; writing by Stuart Grudgings; editing by Todd Eastham)