WASHINGTON–Secretary of Agriculture Tom Vilsack said the U.S. will have to stop monthly payments to Brazil that stem from a cotton dispute at the World Trade Organization because of the automatic spending cuts known as the sequester, a move that risks retaliatory trade measures from Brazil.

The U.S. currently has to pay about $150 million a year to the Brazilian cotton industry to avoid being punished under a WTO ruling over cotton. Brazil and the WTO say some U.S. cotton subsidies are unfair under the rules of the global trade group.

Mr. Vilsack said Wednesday in a telephone interview from Brazil that unless Congress adjusts the sequester cuts or advances expired farm legislation, Washington will pay only half of its approximately $12 million monthly cotton payment in September and none in October.

“I have neither the authority nor the money to make any payment in October or thereafter,” he said.

Informed of the U.S. plans, Brazilian officials indicated during Mr.
Vilsack’s trip that their “patience was not limitless” and that the only option would be for “retaliatory measures” that could go beyond trade in agricultural products, he said.

Brazil has been complaining for a decade about U.S. subsidies for cotton farmers. In 2004, the WTO ruled that the U.S. grants several types of prohibited subsidies to cotton growers and said the U.S. must change the programs or face retaliatory measures from Brazil. In 2010, Brazil and the U.S.
agreed that the U.S. could pay about $150 million a year for technical assistance to Brazilian farmers until the end of 2012, when Congress would have to pass a new agriculture law to end the prohibited subsidies. The payments could be extended temporarily in the absence of new legislation.

The U.S. Senate this year passed a farm bill that would ally most of Brazil’s concerns, but the House of Representatives defeated its version of farm legislation.

Meanwhile, earlier this year a budget impasse in Washington triggered across-the-board spending cuts. So far the U.S. hasn’t trimmed its cotton tribute to Brazil but will have to do so in the absence of new legislation, Mr.
Vilsack said.

The Obama administration has used the threat of sensitive cuts to prod Congress to overcome divides and advance permanent budget legislation.

“I would strongly recommend the Brazilian government to call the United States to fulfill their requirements of the agreement,” said Haroldo Cunha, president of the Brazilian Cotton Institute, which he says is funded by the monthly payments from the U.S. “In my opinion, it’s above the U.S. internal policy, it’s an international agreement.”

In its 2004 ruling, the WTO said Brazil could raise tariffs on cotton and also permitted the country to “cross-retaliate” and target other U.S. products, for example, by lifting patent protection for certain products made in the U.S., including drugs, films and music.

“I think it’s a wake-up call to the House and Congress–they need to get the farm bill done,” Mr. Vilsack said.

Besides the cotton fight, Mr. Vilsack said he discussed concerns about wheat, U.S. beef producers’ access to Brazilian markets, and Brazil’s testing regime for U.S. pork. He was joined by Sen. Debbie Stabenow, chairwoman of the Senate Agriculture Committee, and Sen. Roy Blunt, the committee’s ranking Republican member.