* WTO awards Brazil compensation in U.S. cotton dispute
* Brazil, US offer different interpretations of sanctions
* Brazil says could levy about $800 million in sanctions
* Brazil eyes $340 million in "cross retaliation"
* US: Sanctions worth $300 million, cross-retaliation unlikely (Adds Brazil quotes, details)
By Jonathan Lynn
GENEVA, Aug 31 (Reuters) - The World Trade Organization set conditions for how Brazil can retaliate against the United States over its cotton subsidies on Monday, but the two sides began another fight over what the sanctions were worth.
Brazil said the ruling would entitle it to about $800 million in sanctions against the United States this year, including $340 million of "cross-retaliation" against intellectual property or services.
The United States said the sanctions would be worth about $300 million, and that Brazil would be unlikely in the near future to be able to retaliate against intellectual property -- for instance, lifting patent protection on pharmaceuticals, rather than simply raising tariffs on U.S. goods.
"While we remain disappointed with the outcome of this dispute, we are pleased that the arbitrators awarded Brazil far below the amount of countermeasures it asked for," U.S. trade spokeswoman Carol Guthrie said in a statement.
POLITICISED ISSUE
The complex WTO arbitration ruling brings to a climax one of the most politicised disputes in WTO history, which goes to the heart of developing countries' calls to reform world trade in agricultural goods.
Brazil is the plaintiff in this case, but U.S. subsidies have affected cotton producers all over the world, especially in sub-Saharan Africa, where the entire gross domestic product of most cotton exporters is smaller than subsidies paid by the United States to its 25,000 cotton farmers.
Poverty action group Oxfam America said the WTO ruling confirmed that U.S. subsidies hurt farmers in poor countries.
"American farm policy is broken and bloated, and now other sectors of the U.S. economy may suffer as Brazil retaliates," said policy director Gawain Kripke in a statement.
The United States is also under pressure to cut cotton subsidies in the WTO's Doha round on a new trade deal, on which key ministers are meeting in Delhi this week.
Brazil's WTO ambassador, Roberto Azevedo, said that a Doha deal that led to a substantial cut in U.S. subsidies would automatically solve the trade dispute and end the need for sanctions, but the two issues were not directly connected.
It was regrettable that the United States had not complied with WTO rulings condemning its subsidies four times, and it was of special concern that one of the WTO's key members was ignoring decisions, particularly when WTO members were negotiating new rules in the Doha talks, he told a briefing.
"What guarantees do you have that they will implement the new rules when they are already finding it difficult to implement the old rules?" he asked.
U.S. cotton farmers complained the decision is outdated. Now, hurt by recession and competition from China, India and even Brazil, U.S. cotton production has shrunk 46 percent since 2005 and exports by 25 percent.
CONFLICTING INTERPRETATIONS
Brazil had sought $2.5 billion in annual retaliatory trade sanctions in the dispute but the United States had said a figure of $20-30 million was appropriate.
In one 132-page ruling, the WTO said Brazil was entitled to annual retaliation of $147.3 million because U.S. marketing loan and counter-cyclical payments had depressed world cotton prices, hurting its exports.
In a second 152-page ruling, the WTO said Brazil was entitled to compensation for prohibited U.S. export credit guarantees. This would be $147.4 million for the fiscal year ended September 2006, and set by formula for other years.
Cross-retaliation would be possible if compensation in a given year rose above a certain level of imports of U.S. consumer goods, the WTO said.
Azevedo said the level of Brazil's sanctions would rise and fall with that of U.S. subsidies. The combined figure of $295 million was based on fiscal 2006, the last full year for which the arbitrators had data.
Applying the methodology prescribed by the WTO led to the higher figure of $800 million, because applications for illegal export credit guarantees, for example, had risen to $4.62 billion so far this year from $1.36 billion in fiscal 2006.
The Obama administration will talk to Congress and industry stakeholders about cotton subsidies in the light of the ruling, the U.S. Trade Representative's office said. (Additional reporting by Raymond Colitt in Brasilia, Roberta Rampton and Doug Palmer in Washington; Editing by Charles Dick and Marguerita Choy)