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In a Pending Trade Scrap, Brazil May Fight U.S. Farm Bill


By: Neil King Jr.
 The Wall Street Journal, June 24, 2002


WASHINGTON -- Brazil is preparing to challenge the U.S.'s farm-subsidy program, in what could become another major trade headache for President Bush.

The threat of Brazil filing a case with the World Trade Organization comes as Congress moved toward passing a controversial farm bill that would boost annual subsidies to U.S. farmers by more than $7.3 billion. The bill has come under attack from Brazil as well as the European Union, Canada and Australia, suggesting that others might take their complaints to the WTO as well.

The Brazilian case, which will argue that the U.S. payments deprive Brazilian soybean and cotton farmers of more than $1.5 billion a year in exports, could also complicate the president's plan to create a free-trade area stretching from Alaska to the tip of South America by 2005.

Brazilian officials huddled this week with their lawyers in Washington, working out the details for what could be one of the largest WTO challenges to date. Pedro de Camargo Neto, secretary for trade at the Brazilian ministry of agriculture, said the country would seek at least $1 billion a year in injuries for U.S. soybean subsidies and more than $500 million a year for cotton subsidies.

Brazilian officials argue that U.S. soybean subsidies of $3.8 billion a year prevent their country's farmers from gaining access to other markets. Brazil has moved aggressively into soybean farming in recent years, and its soybean exports last year totaled $5.2 billion.

The Brazilian government, which has hinted at a WTO challenge for weeks, hasn't decided when to file the complaint. But Brazil's ambassador to Washington, Rubens Barbosa, said the government has decided to pursue a WTO case.

How strong a Brazilian WTO case would be isn't clear. Under the Uruguay Round of trade talks, countries aren't generally allowed to challenge one another's farm subsidies until 2004, as long as those subsidies fall within proper limits. But countries can challenge if subsidies on individual items exceed their 1992 level. U.S. soybean subsidies have shot up to nearly $4 billion, from virtually zero in 1992.

President Bush said he is "pleased" with the farm bill and believes it is "consistent" with WTO rules. An administration trade official expressed skepticism Thursday that a possible Brazilian case would succeed at the WTO. He also said the U.S. was disappointed that Brazil appeared to be choosing the route of confrontation over negotiation, especially as all WTO countries are now discussing sweeping agricultural reforms.

Some trade experts say the latest farm bill could pose a greater long-term challenge to President Bush than his decision to impose three-year steel tariffs in March. "If Bush signs this bill, it will be the biggest blow to U.S. credibility in the trade arena for years, even bigger than steel," said Brink Lindsay, director of trade policy at the libertarian Cato Institute.

Brazil considered an attack at the U.S. farm-subsidy program even before the current farm bill took shape. The legislation, officials from Brazil and other large U.S. trading partners say, marks a departure from recent U.S. efforts to lower trade-distorting practices elsewhere in the world. At WTO trade talks in Qatar in November, the U.S. said it would fight to lower farm subsidies in the developed world to help exporters in poor nations.

With an increase in spending of about $45 billion over six years, the total price of the 2002 farm bill could approach $20 billion a year through 2009. Under the Uruguay agreement, the U.S. agreed to limit trade-distorting commodity subsidies to $19.1 billion a year. EU countries are allowed to spend around $60 billion a year.

Mr. Barbosa, the Brazilian ambassador, said his country is more and more reliant on farm sales, and thus plans to become "increasingly assertive to protect our trade interests." Brazil is also working on a sugar-subsidy case against the EU.

Just Thursday, Brazilian and American diplomats began WTO consultations on frozen orange juice, a long-running dispute that Brazil challenged before the WTO in March. Beyond that, Brazil has been collecting data in advance of possible WTO challenges of U.S. steel safeguards and sugar subsidies, the next targets of Brasilia's increasingly assertive foreign-trade policy.

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