New Zealand trade officials have responded cautiously to news of a World Trade Organisation decision which could deal a major blow to US export subsidies.
Reuters is reporting that Brazil has won a landmark victory in its case against US cotton subsidies.
New Zealand joined Brazil in thecase as an interested party, along with Australia, Argentina, India and several other nations.
If confirmed this will be the first successful challenge by a developing nation to the domestic farm policies of a rich country.
The ruling will not be officially released until June 18 but is expected to open the way for a flood of similar actions challenging beef, dairy and other agricultural subsidies in the US and European Union.
It is also expected to put pressure on the US and EU to give ground on subsidies at the next meeting in the Doha round of trade talks, which have been stalled because of a stand-off over agricultural subsidies.
Trade Minister Jim Sutton declined to comment on the WTO decision. A spokeswoman for his office said he had not yet seen the draft ruling and was not able to comment until it was formally released.
Officials at Meat New Zealand and Fonterra also said it was too early to comment, although they are understood to be encouraged by the news.
The US Government has responded to the reports by arguing its policies are "fully consistent" with global trade rules.
"We will be defending US agricultural interests in every form we need to and have no intention of unilaterally taking steps to disarm when it comes to this," said White House spokesman Scott McClellan.
Trade sources at the WTO said Brazil argued that the US had exceeded limits for cotton subsidies and this had led to an over-supply which depressed world cotton prices.
The WTO is understood to have told Washington to cut a large portion of the aid it gives to its 25,000 cotton farmers.
Oxfam New Zealand executive director Barry Coates welcomed the decision.
"This would be a huge victory, not just for Brazil but for 10 million poor African farmers whose livelihoods have been crippled by unfair competition with highly subsidised US cotton," he said.
