Brazil has claimed a victory over the US, the world''s second largest cotton producer, after the World Trade Organization (WTO) upheld its complaints that US subsidies to its cotton farmers, distorted the price of cotton and made it harder for developing nations to compete.

Subsidies, particularly those paid to the US cotton sector, have been at the heart of disagreements at the stalled WTO trade talks.

Clodoaldo Hugueney, Brazil''s ambassador to the WTO, said, the (WTO investigating) panel had recognised most of the points that Brazil raised.

The US said it was disappointed by the ruling and would protect its farmers, even though Brazil has warned of retaliation should the US not comply with the WTO''s preliminary ruling. US Agriculture Secretary Mike Johanns said that the US would work "very, very hard" to protect the financial payments it made to cotton farmer. He also said, "Brazil claims once again to have largely defeated the US. They have been emboldened by a declaration that they have a right to retaliate."

The US argued that it had already taken sufficient steps to meet WTO requirements, and had ended a number of payments and credits, steps that prompted the WTO to say that it was "very disappointed with these results".

"The changes made by the US were insufficient to bring the challenged measures — certain support payments under the 2002 Farm Bill and export credit guarantees — into conformity with US WTO obligations."

The WTO''s member nations are due to meet in September to try and save the current Doha round of trade talks, which started in Qatari capital in 2001.