Washington (AFP) - The United States and Brazil closed a 12-year-old fight over US cotton subsidies Wednesday, with the US paying $300 million to the Brazilian Cotton Institute to settle the trade battle.

US Trade Representative Michael Froman said Brazil had agreed to end its World Trade Organization case against the world's largest cotton exporter, and to not lodge any new actions as long as current US policies remain in place.

The US meanwhile must hold to the conditions under its current farm support policies. That includes keeping new limits on export credits and guarantees provided to cotton exporters, so as not to give them unfair advantage in the global marketplace.

Brazil, the world's fourth-largest cotton exporter, first raised objections to US cotton subsidies in 2002, saying US subsidies violated WTO rules.

The WTO ruled in Brazil's favor in 2005 and again in 2008, allowing Brasilia to impose countermeasures against US trade.

That verdict raised US worries about losing market access and intellectual property protection in Brazil, as well as the United States's 28 percent share of global cotton trade.

What led to the deal announced Wednesday was an interim agreement in 2010 for Brazil not to take retaliatory action, backed by payments to the country, and then the passage of a new farm bill by the US Congress in February this year which tightened US cotton support programs and export guarantee programs.

"There was an understanding that quarreling was not the best thing," Brazil's foreign minister, Luiz Alberto Figueiredo, said in Washington.

"We won the WTO dispute... and now we achieved an agreement between the two countries to resolve the issue."

He noted that the $300 million payment to support the Brazilian Cotton Institute comes on top of $505 million the United States already paid Brazil in the case.

Figueiredo said the changes to US export financing exacted in the deal were cut back not only for cotton but other crops Brazil is concerned about.

"Today's agreement brings to a close a matter which put hundreds of millions of dollars in US exports at risk," USTR Froman said in a statement.

"The United States and Brazil look forward to building on this significant progress in our bilateral economic relationship."

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