The U.S. Court of Appeals here yesterday upheld federal standards limiting textile workers' exposure to cotton dust, the cause of "brown lung" disease.

Observers of Washington's regulatory scene saw the 84-page ruling as a clear affirmation of the authority the Occupational Safety and Health Administration has to issue detailed regulations protecting the nation's workers.

OSHA had set maximum standards of cotton dust exposure for millworkers. The regulations were the first OSHA standards that did not involve the control of suspected cancer-causing agents.

The court, in rejecting industry arrguments that the standards would be technologically infeasible and too costly to meet, said OSHA had acted properly when it weighed those arguments and rejected them earlier.

"Congress had made it clear that OSHA must protect every worker from from the risks of material health impairment due to occupational exposure to hazardous materials." Senior U.S. Circuit Court Judge David L. Bazelon wrote for the unanimous three-judge panel.

The cotton dust regulations, which must be implemented within four years of final approval by the federal courts, will oblige the textile industry to spend at least $550 million in capital improvements.

The court yesterday gave the industry 20 days to show why the implementation process should not begin immediately thereafter.

"Even if a few firms are forced to shut down, the standard is not necessarily economically infeasible," Bazelon wrote. Agreeing with Bazelon were Circuit Court Judges Spottswood Robinson III and Edward A. Tamm.

Brown lung is the name given to byssinosis, a respiratory aliment that has been conclusively attributed to the effect of cotton dust on the respiratory passages. It is the most serious health hazard for cotton mill workers, hundreds of thousands of whom are exposed daily to the dust that causes it.

More than 35,000 people have been disabled by the ailment, and as many as 100,000 workers suffered from the disease in 1970, Bazelon noted. Its effects can range from difficulty in breathing to irreversible lung damage.

OSHA published its brown lung regulations after compiling more than 100,000 pages of testimony about the disease. The agency's decision to act to reduce the health risk to cotton workers was opposed by the textile industry and -- In some instances -- the workers' unions. The industry argued that the regulations are unwarranted and too costly. The union argued that two provisions were too lax.

The industry argued that a higher premissible exposure level would protect millhands just as well and at less cost than the OSHA regulations if they were obilged by law to wear respirators and were rotated to less dusty sections of a plant.

OSHA was correct in rejecting those arguments, the court noted, because respirators can cause discomfort, and because management failed to prove that there would be enough job transfers available in the typical textile mill to accommodate workers threatened with brown lung.

"We recognize that the agency's control strategy is costly," Bazelon wrote. "But it is the result of long and comprehensive investigation by the agency assisted by extensive public participation.

Despite its broad approval of OSHA's cotton dust standards, the appellate panel ordered the agency to reexamine the standards as they apply to the cottonseed oil industry. It said OSHA did not explain sufficiently why the standards shoud be applied to that industry, spokesman for which have estimated that 62 of its 83 U.S. mills -- or 52 percent of the industry's production capacity -- would have to shut down if forced to comply with the dust standards.