The US cotton programme was thrown into doubt yesterday after the Geneva-based World Trade Organisation ruled that American cotton growers are unfairly subsidised and that federal aid such as export guarantees, subsidies and crop payments violates international trade agreements.

The ruling means the United States must change its cotton program or risk facing trade sanctions.

The WTO was acting on a complaint filed by Brazil in 2003 alleging that US government subsidies, paid to 25,000 cotton farmers, drove down world prices and made it harder for other countries to compete.

Brazil said the US Agriculture Department paid $12 billion in subsidies to American cotton farmers from 1999 to 2002, and that despite higher production costs US farmers still undercut their cheaper competitors.

The WTO ruling is final. It follows an appeal lodged by Washington against an original decision favouring a Brazilian complaint against the subsidies.

In its appeal, the United States said USDA payments to farmers are within permitted levels because many are not subsidies as defined by the WTO. The WTO rejected that argument.

"We will study the (WTO) report carefully and work closely with Congress and our farm community on our next steps," said Richard Mills, spokesman for the US Trade Representative's office.