Government officials in Brasilia have hinted that the Mercosur trade bloc could hike import tariffs on foreign cotton from 8 to 55 per cent in response to the new US Farm Bill.

The new Bill boosts subsidies for American cotton farmers, but Brazilian cotton growers claim they suffer because it also depresses international prices.

The plan was put forward yesterday as an alternative to a recent proposal from local growers for a 115 per cent compensatory tariff on American cotton.

Brazil's textile industry opposes the growers' proposal as it could spark a cut in export quotas to the US. Instead, a multilateral approach extended across Mercosur, which includes Brazil, Argentina, Uruguay and Paraguay, with Chile and Bolivia as associate members, is favoured.

Brazilian officials are preparing a challenge against US cotton subsidies at the World Trade Organisation.