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The trade talk

(Sunday, Aug. 8, 2004 -- CropChoice commentary) -- The articles below represent but a fraction of the stories, commentary and news releases about the WTO reaching a framework for negotiations that could affect the agricultural export subsidies of the United States and the European Union. The first two pieces, one by the Institute for Agriculture and Trade Policy and the other by Devinder Sharma, point out that, despite all the talk, rich country subsidies likely won't be ending anytime soon.

But let's assume for a moment that the subsidies were going away tomorrow. The line seems to be that doing so would help the world's poor farmers. Really? How's that? The WTO is is all about trade. Exporting rules. Globalization. In the case of agriculture it's about growing lots of similar commodity crops -- cotton, soybeans, corn, sugar, cocoa, and others -- on a wide scale. It's about sort of leveling everything out so that we still have lots of the food and feed products moving all over the place. It's about agribusiness. But there's little talk in the mainstream media of the large, wealthy, interconnected entitities processing and exporting these crops. One has to hunt around to get beyond such language as "Brazil is the largest exporter of sugar..." Or "America's farmers exported more corn..." Farmers in the United States and Europe do not export what they harvest. And neither do nor will farmers in India, Brazil or wherever.

Cargill, ADM, Bunge and their partners and subsidiaries do the processing and exporting. And it's their role in this that has been forgotten.

So when reading the pieces below about Brazil's sugar industry, bear in mind the following: "Cargill, which has its headquarters in a 63-room replica of a French chateau outside Minneapolis, has steadily expanded its operations in Brazil, a country it entered nearly four decades ago and is now one of its largest sources of revenue outside the United States. Cargill accounts for about a quarter of sugar exports from Brazil, and has become a leader there in soybean crushing, orange juice and cocoa production, as well as the trading of commodity contracts in São Paulo, Brazil's financial center." (Brazil's Spreading Exports Worry Minnesota Farmers, SIMON ROMERO, June 22, 2004 http://www.floridafarmers.org/news/articles/brazilSpreading.htm )

In fact, let's not forget that Cargill wants to bring Brazilian ethanol through Central America and into the United States.

And when reading about possible threats to the Canadian Wheat Board, which holds the monopoly to sell the wheat grown by the country's farmers abroad, think about the huge market share that Cargill and ADM have over wheat in the U.S. and elsewhere.

Rather than thinking about this as merely cutting subsidies, one might consider reforming national and international farm and trade policy to be more in line with family farmer interests. For more on that, please read a recent report by the Agricultural Policy Analysis Center at the University of Tennessee. It's called, "Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide," and is available at http://www.agpolicy.org/blueprint.html .

1. Another "Truly Historic" Trade Agreement
By Sophia Murphy
August 2, 2004

This weekend, Ministers from around the world echoed the Director General of the World Trade Organization (WTO) touting a "truly historic" agreement for international trade. Certainly, the agreement -- a framework on what will, may or should be negotiated -- was consistent with the history of agricultural negotiations at the WTO. It is full of well-meaning rhetoric, and does nothing to address the fundamental distortions in world agricultural commodity markets.

The framework document shows exactly how low the bar has been set for a success at the WTO particularly for the hotly debated area of agriculture. What actually happened? WTO Members were able to recover from their failure last year in Cancun by reinvigorating the now almost three-year old Doha Agenda, which was paralyzed with missed deadlines and deadlocked negotiations. But does the framework actually lower tariffs or cut subsidies? No, not yet. In fact, if this weekend's framework dictates the shape of the new Agreement on Agriculture (expected sometime around 2007 at this rate), the cuts to actual subsidies will be small to non-existent.

International trade in agriculture is a mess. The mix of national policies and multilateral rules now in force has encouraged agricultural dumping and sent commodity prices plunging. Farmers around the world are forced off their land, unable make a living growing food. Every international institution, including the World Bank and the WTO itself, blames the agricultural policies of rich countries for the devastation of rural communities in developing countries. Other critics decry the damage these policies cause to rural communities in developed countries. Food security the ability of countries to feed themselves with adequate and culturally appropriate food - seems a more elusive goal than ever.

The WTO has become the focus of government efforts to solve these problems. Unfortunately, the debate at the WTO has centered on three so-called "pillars" of agricultural policy: government financial support of producers, tariffs, and export subsidies. WTO orthodoxy is that all of these must be cut despite a decade of evidence that the model of agricultural "liberalization" supported by these "pillars" has been disastrous for farmers and rural development everywhere. It is time for a new set of multilateral rules for agriculture that would have an immediate positive impact on the lives of family farmers and rural communities around the world. Here are five ways to transform agricultural trade:

  • Stronger Rules Against Dumping Current WTO rules tackle dumping by allowing countries to tax imports that are sold for less than the price in the home market, but this levy is insufficient. Extensive and chronic over-production of many commodities have depressed prices and made dumping endemic. Dumping should be measured against production costs and a socially optimal profit, not against easily manipulated domestic prices. Developing countries, unable to protect their producers with subsidies, must be allowed to immediately block dumped imports at the border.
  • Stabilizing Commodity Prices Agricultural commodity markets are inherently unstable (e.g. due to crop failures) and prone to both price spikes and prolonged periods of over-production and low prices. Unregulated commodity markets have failed to manage these structural characteristics (consider the recent roller-coaster ride of coffee prices, which has devastated the lives of millions of poor coffee growers). The UN Commission on Trade and Development has established a task force to create a toolbox of policies to address the global commodity crisis, including international commodity agreements among major exporters, and regional grain reserves.
  • Regulate Market Concentration - Vertical and horizontal concentration in global commodity markets is a primary cause of market distortion. Possible policy responses include an international review mechanism for proposed mergers and acquisitions among agribusiness companies that are present in a number of countries simultaneously. At a minimum, transparency requirements now imposed on state-trading enterprises should be extended to companies with 20% or more of a national or global market in a given commodity.
  • Linking Tariffs and Exports - The 1947 General Agreement on Tariffs and Trade (GATT) allowed countries to use agricultural tariffs if they practiced supply management, but prohibited them from exporting. This approach should be revived. Instead of assessing national programs by how much they cost, trade negotiators should focus on their trade-distorting impact.
  • Protecting Standards and National Development - As the WTO itself has observed, lowering trade and investment barriers makes regulation of industry more difficult, creating a trade-off between increased efficiency and strong standards, whether environmental, labor-related or other. Governments should approach competition and investment issues from the perspective of protecting standards and national development objectives, rather than requiring governments to demonstrate that regulations to realize those objectives are least trade restrictive.

The WTO is now over 10 years old. It is overdue for an objective evaluation of whether its prescriptions have benefited people, not just boosted cross-border trade statistics. It is time to craft policies that discipline all sources of market distortion and to measure success against the imperative of meeting international development benchmarks. Such an agreement really would be historic.

Sophia is a Senior Associate at the Institute for Agriculture and Trade Policy. Smurphy@iatp.org

2. WTO accord: Faulty frame, rude reality
Devinder Sharma

THERE is much brouhaha over the framework agreement reached by World Trade Organisation members in Geneva last week, with the developing countries in an exult over the concessions drawn from the developed nations. Nothing could be farther from reality.

Though the WTO Director-General, Dr Supachai Panitchpakdi, may not be even aware how the wool was pulled over the eyes of the developing nations, the US Trade Representative, Mr Robert Zoellick, and the outgoing European Union's Trade Commissioner, Mr Pascal Lamy, have sent them back with the empty promise of reducing the contentious monumental agricultural subsidies. Further, they have got the approval of the developing countries to increase subsidies.

A look at the political ramifications. Agricultural subsidies had been, and will remain, the bone of contention, with the developed countries refusing to cut the sops that run to $320 billion every year. So much so that the issue led to the collapse of the WTO Cancun Ministerial in September 2003. So what made the rich change their stand and so soon?

It is accepted that any move to significantly cut farm subsidies can be politically suicidal for the rich countries. The US President, Mr George Bush, would not even think of contesting after agreeing to chop subsidies for farmers. The European nations, especially France, Germany, and the Nordic countries, would have been in a turmoil if the framework agreement indeed means any drastic cut in subsidies.

The devil, as they say, is in the detail. Paragraph 7 of the Framework for Establishing Modalities in Agriculture (July 31 final draft) says: "As the first instalment of the overall cut, in the first year and throughout the implementation period, the sum of all trade-distorting support will not exceed 80 per cent of the sum of final bound total AMS (Aggregate Measurement of Support) plus permitted de minimis plus the Blue Box at the level determined in paragraph 15." Reading this together means that, first, far from removing the trade-distorting Blue Box, the mechanism stands strengthened. The developed countries can shift a chunk of its agricultural subsidies (under the Green and Amber Boxes) to the Blue Box. In other words, the advantage the developing countries had gained with the termination of the Peace Clause on December 31, 2003 (under which the developing countries could not challenge agricultural subsidies in the rich countries) has been negated. They will now be confronted by an equally detrimental Blue Box.

The framework actually provides a cushion to the US and the EU to raise farm subsidies. The draft makes it obvious that the first instalment of a cut in subsidies by 20 per cent is not based on the present level of subsidies but on a much higher level now authorised based on the three components - the final bound total AMS, plus permitted de minimis plus the Blue Box. For the EU, this should come to euro 95.76 billion and after applying the first cut, the subsidies that can be retained will be euro 76.63 billion. Adding all the components, as specified in the WTO framework, the EU subsidies now will total around (including the under-notified coupled support) euro 55.8 billion, far less than what it is supposed to reduce. In other words, the EU gets enough leverage to increase its subsidies. No wonder the so-called phase-out of subsidies has not snowballed into a political crisis in Europe.

Further, the EU has Blue Box subsidies of euro 14.31 billion. This is a large amount and, therefore, the framework states: "In cases where a Member has placed an exceptionally large percentage of its trade-distorting support in the Blue Box, some flexibility will be provided on a basis to be agreed to ensure that such a Member is not called upon to make a wholly disproportionate cut." The EU, therefore, has nothing to worry about cutting the Blue Box subsidies.

The US, on the other hand, wants to shift the counter-cyclic payments of $180 billion that it has provided to farmers under the notorious Farm Bill 2002 (70 per cent of this amount is to be spent in the first three years, before Mr George Bush goes to elections) to the Blue Box. Since the WTO will now specify the historical period from which the Blue Box implementation will begin, it means that the US can protect the yearly instalment of its counter-cyclic payments to farmers. In the case of cotton subsidies where the US provides a daily support of $10.7 million to its 25,000 growers, and where the ruling of the WTO dispute panel has gone against the US cotton subsidies, the WTO refused to act. All that the WTO General Council has done is to "instruct the Director-General to consult with the relevant international organisations, including the Bretton Woods Institutions, the Food and Agriculture Organisation and the International Trade Centre, to direct effectively existing programmes and any additional resources towards development of the economies where cotton has vital importance."

Special and differential treatment was intended to give implementation concessions to the developing countries, given the varying levels of development. However, the S&D measures came to be used only by the developed countries. Instead of dispensing with these measures, the framework legitimises their application for the rich countries. The only redeeming feature is the promise to the developing countries a special safeguard mechanism. As if the massive subsidies are not enough, the developed countries have used high tariffs to block imports from developing countries. They have resorted to special safeguards measures (SSG), used only by 38 rich countries so far, to restrict imports from developing countries. Developed countries took advantage of this flexibility by reserving the right to use the SSG for a large number of products. On the other hand, only 22 developing countries can use SSG. These SSG measures remain under negotiations, which means these will continue for quite some time.

The question of market access assumes importance in the light of the special and differential treatment, special safeguard measures and the domestic support (including Green Box subsidies) remaining intact in the developed countries. Using a tiered formula, the developed countries have managed to seek overall tariff reductions from bound rates and "substantial improvements in market access will be achieved for all products". The only defence the developing countries have is to brand some of their important agricultural products as `sensitive' and bring some others under the `special product' category. But, then, the developing countries have already opened their markets by phasing out or removing quantitative restrictions or lowering tariffs.

Also,the developed countries have been allowed the same provisions, which means that they can term some crucial commodities as sensitive and, thereby, deny market access. For instance, the US, the EU, Japan and Canada maintain tariff peaks of 350-900 per cent on food products such as sugar, rice, dairy products, meat, fruits, vegetables and fish, which can be readily brought under the category of `sensitive' and some 25-40 of the sensitive tariff lines under the tariff quota can be easily protected under this category. In any case, a country such as India cultivates some 250 different crops a year, whereas Europe does not grow more than 25. . For Europe, getting a score of crops protected under `sensitive' and `special products' will be justified. But to expect WTO to accord `special product' status to over 200 crops from India would be asking for the impossible.

If one is wondering as to why the developing countries still agreed to reach an agreement and that too within five days of intense negotiations, a look at what transpired before the meeting. The G-20 leader Brazil was among a number of developing countries thrown a sugar-coated bait just a week before the negotiations entered the decisive phase. On July 23, the US announced its sugar quota allocation for 40 countries. This system allows these countries to export a fixed quota to the US at a lower tariff rate. According to international NGOs, the EU had withdrawn aid to Kenya, the most vocal of the African countries. It may be recalled that the Kenya walkout at Cancun had led to the collapse of the WTO Ministerial. This time, the EU withdrew $60.2 million aid to Kenya on July 21 under the pretext of `bad governance'.

The UK Trade Minister, Ms Patricia Hewitt, is on record that the UK was using its influence to persuade developing countries. Moreover if `bad governance' is the EU's legitimate concern, there seems to be no justification in joining hands with the US at such international negotiations after the US' illegal war in Iraq. Despite the World Bank painting a picture of the gains from the implementation of the WTO trade agenda, the fact remains that surging food imports have hit farm incomes and impacted the employment scene in many developing countries. Unable to compete with cheap food imports, and in the absence of adequate protection measures, income and livelihood losses have hurt women and poor farmers the most. The resulting loss in livelihood security and the speed-march towards hunger and destitution can only lead to large-scale displacement of farming populations in the developing world.

(The author is a New Delhi-based food and trade policy analyst. He can be reached at dsharma@ndf.vsnl.net.in)

3.Liberals risking wheat board, dairy and poultry production at WTO, says NDP
Tue Aug 3, 3:58 PM ET

OTTAWA (CP) - The Liberal government has put too much on the table at world trade talks, gambling with the future of Canadian farmers and the rural economies they support, the NDP charged Tuesday.

Several "fundamentals" of domestic farming - from supply management in milk and poultry to the Canadian Wheat Board - will be on the agenda in coming talks at the World Trade Organization (news - web sites), says NDP agriculture critic Charlie Angus. That could endanger rural Canada, the newly elected MP for the Ontario riding of Timmins-James Bay told a news conference Tuesday.

"The future of many Canadian farms is at risk," said Angus, who fears even crop insurance programs could be up for grabs. "The future of the Canadian Wheat Board is seriously in doubt."

Canada, the United States and the other 145 members of the WTO agreed during the weekend to a plan aimed at restarting stalled talks to develop new, more fair global trade rules.

Agriculture was just one aspect of negotiations launched in 2001 in Doha, Qatar, that collapsed last fall in Cancun, Mexico.

Countries also pledged to work at reducing trade barriers in industrial goods and service industries such as telecommunications and banking.

But for Canada, protecting the agriculture sector while getting better access to markets around the world has become a key focus.

To spur negotiations, countries including the United States and the European Union agreed on the weekend to end certain massive export subsidies on farm products and to cut import duties around the world.

That puts pressure on Canada to open up its supply managed egg, dairy and poultry sectors.

It also means fresh attacks on the Winnipeg-based wheat board, which holds the monopoly to sell Western Canadian grain abroad on behalf of almost 100,000 farmers.

The wheat board has faced roughly a dozen challenges from Washington and other competitors in the international grain trade over its monopoly and the fact Ottawa helps to backstop its deficits.

But it has always been found to conform with global trading rules.

Trade Minister Jim Peterson said Canada could find no allies in its fight to keep the wheat board off the agenda at the tough weekend talks in Geneva.

But Peterson promised that Ottawa will defend the board and the supply management system.

"Our CWB has been proven to be consistent with our international trade obligations and I am confident . . .we will be able use this as an opportunity to remind our WTO partners of that," Peterson said in an interview after the talks.

Yet the wheat board, governed by 10 elected farmers and five federal appointees, remains worried, as do dairy and egg producers.

They say they understand the need for freer global trade but worry about the possible cost.

"We encourage our government to continue to fight for Canadian agriculture and ensure that its commitment to supply management is translated into the final WTO agreement," said David Fuller, chairman of the Chicken Farmers of Canada.

Ed de Jong, president of the Canadian Broiler Hatching Egg Marketing Agency, said trade officials assure him the talks will further Canada's aim of better access to world export markets.

But Bob Friesen, president of the Canadian Federation of Agriculture, warned that when talks resume next month, there's plenty of room for the U.S. to keep subsidizing its farmers while trying to limit Canada's ability to manage its farm sector.

"Canada will have to work hard to ensure its right to maintain these systems is not lost," Friesen said.

"The wheat board and supply management are effective marketing tools for Canadian producers that do not distort global trade."

4. Wheat board seeks compensation from Ottawa if trade deal approved
Wed Aug 4, 5:40 PM ET

WINNIPEG (CP) - Ottawa should compensate western Canadian grain farmers for the "hundreds of millions of dollars" they'll lose each year if their guaranteed payments are wiped out in an international trade deal, the Canadian Wheat Board said Wednesday.

While board chairman Ken Ritter acknowledged a final global trade pact is still likely several years away, he said it's important for the board to begin negotiations with Ottawa immediately. "We want to get our oar in the water right away," said Ritter.

"We're hoping this sends a clear message that if, in the framework document we've traded off something of value to western Canadian farmers, we're compensated for it."

The Canadian Wheat Board was among the items put on the agenda for the coming round of talks at the World Trade Organization.

Canada, the United States and the other 145 members of the WTO agreed during the weekend to a plan aimed at restarting stalled talks to develop new, more fair global trade rules.

Agriculture was just one aspect of negotiations launched in 2001 in Doha, Qatar, that collapsed last fall in Cancun, Mexico.

But for Canada, protecting the agriculture sector while getting better access to markets around the world has become a key focus.

To spur negotiations, countries including the United States and the European Union agreed on the weekend to end certain massive export subsidies on farm products.

That means fresh attacks on the Winnipeg-based wheat board, which holds the monopoly to sell western Canadian grain abroad on behalf of almost 100,000 farmers. Ottawa also helps backstop its deficits.

Trade Minister Jim Peterson and Agriculture Minister Andy Mitchell could not be reached for comment Wednesday.

Peterson has said this week Canada could find no allies in its fight to keep the wheat board off the agenda at the tough weekend talks in Geneva.

But Peterson promised Ottawa will defend the board and the supply management system.

Peterson, Mitchell and Reg Alcock, minister responsible for the wheat board, plan to have detailed discussions with wheat board officials before the talks resume next month.

They got support Wednesday from the Grain Growers of Canada, the only national organization representing grain producers from across the country.

In a letter to Mitchell and Peterson, president Ken Bee said his group is pleased the agreement could end all forms of export subsidies and increase market access for grains, oilseeds and related products.

5. Brazil Poised to Be Bigger Sugar Power
Fri Aug 6, 2:32 PM ET

SAO PAULO, Brazil - Just an hour's drive from this teeming city of 18 million, lush sugarcane fields stretch for hundreds of miles, towering more than twice the height of farm workers toiling under the relentless sun.

Born in the 1970s as Brazil turned to alcohol-fueled cars, the sugar industry in Sao Paulo state started as a brash but backwater operation dedicated to producing ethanol for domestic consumption. But over the last decade, it has eclipsed all competitors, taking advantage of advanced technology and the planet's lowest costs for making refined sugar for export.

Now the world's most important sugar region is poised for more growth and a wave of foreign investment — thanks to a World Trade Organization (news - web sites) ruling this week that European sugar subsidies unfairly reduce the profits of Sao Paulo's large, self-contained sugar growing and processing plantations.

"Today is D-Day for the liberalization of the world's protected sugar market," said Eduardo Carvalho, president of the association representing Sao Paulo state's sugar farmers. "This decision represents a victory of developing countries, like Brazil, in search of the way to make globalization a two-way street."

No. 1 sugar producer and exporter Brazil accused the European Union, the world's second-largest exporter, of shipping abroad more subsidized sugar than permitted by international trade rules.

The WTO preliminary ruling, if upheld, could eventually allow the producer of nearly 17 percent of the world's sugar to more than double its current sugar farmland of 12.4 million acres, Carvalho said. That would translate into cane fields across an area the size of Cuba.

Sugar's farming in Brazil is as old as the country's colonial history, dating back more than four centuries when Portuguese settlers planted it to feed huge European demand. But farmers traditionally grew cane in the Brazil's northeastern region, thousands of miles from the city of Sao Paulo, Latin America's largest.

Southern Sao Paulo state got its big start during the energy crisis of the 1970s, when Brazil's military dictatorship launched a massive government-backed program to promote alcohol-fueled cars and wean the country from dependance on expensive imported gasoline. No one knew then that Brazil would later find massive reserves of petroleum offshore from Rio de Janeiro.

Critics of Brazil's sugar industry say it's ironic that Brazil challenged European subsidies after building up its sugar industry for decades with government loans, fixed prices for ethanol, taxes on gas to encourage consumers to use alcohol-fueled cars and other incentives.

"I am not condemning Brazil for doing that, I just don't want my farmers put out of business," said Jack Roney, director of economics and policy for the American Sugar Alliance. "Our mantra is the U.S sugar producers and others can compete against any other farmers in the world, but we can't compete against their government treasuries."

Brazilian sugar producers acknowledge that they probably wouldn't be in business if it weren't for past government help, but say South America's largest country had no choice when its economy collapsed during the 1970s oil crisis.

"Brazil broke down and the country didn't have money to buy petroleum," said Luis Eduardo Junqueira Figuieredo, who runs his family's 74,000-acre sugar plantation about 230 miles from Sao Paulo. "It wasn't, 'Let's create a subsidy program to help the farmers.' It was an incentive to create alternate fuel for the well-being of the country."

From the 1970s through the 1980s, Sao Paulo's sugar industry grew rapidly as farmers bought up cheap land and hired low-cost labor to work the fields, using virtually all production to make ethanol. Acreage once dedicated to coffee and corn was replaced by cane.

But crisis hit in 1989 when bad weather decimated production in Sao Paulo state, leading to shortages of ethanol at the pumps that enraged millions of drivers who had purchased alcohol-powered cars.

"No one wanted an alcohol-fueled car anymore, and that really hurt the growth of the business," Figuieredo recalled.

Sugar plantation owners decided to shift gears, experimenting with new strains of cane and investing in high technology milling operations to produce refined table sugar for export. Brazil surpassed India as the world's top sugar producer in the mid-1990s, and exports more than doubled from 5.8 million metric tons in 1996 to 13.4 million metric tons in 2002.

At Figuieredo's plantation outside the small town of Sao Joaquim de Barra, the air is thick with the smell of sugar and alcohol as hundreds of workers cut cane and operate two mills around the clock during the May-November harvest season.

The operation, started in 1979, now harvests and crushes 2.6 million tons of cane a year, processing it into 18.5 million gallons of ethanol and 250,000 metric tons of refined sugar. Two years ago, the family diversified by building a small power plant that burns cane waste. It powers the farm, and excess electricity helps light Sao Joaquim de Barra.

Brazilian sugar industry players are so savvy that they probably don't need the trade victory to keep profiting, said Steven Kyle, economist and professor at Cornell University's college of agriculture and life sciences.

"This is modern agriculture with the best soil and climate around and the potential for world domination of the market," said Kyle, who has visited Sao Paulo's sugar region. "If I took off my glasses and made them a little blurry, I could be in the Midwest."

Brazilian farmers also have something else to smile about. Automakers last year introduced "flex-fuel" cars in Brazil that run on either gasoline or alcohol. Nearly 50,000 were sold last year, and this year's sales of 150,000 flex-fuel cars represent 18 percent of new cars sold so far in 2004.

Kyle said the flex-fuel cars could give Sao Paulo's sugar cane growers a guaranteed domestic market. Most flex-fuel car buyers are currently filling up with alcohol because costs half as much as gas, hit again by another worldwide oil crisis.

"If they can get their automotive fleet hooked on alcohol, then they are golden," Kyle said. "The trouble with sugar has always been that it is the most volatile international market commodity in terms of price."

6. Brazilian Minister Says Trade Talks Set for Success
Sat Jul 31,11:18 AM ET

GENEVA (Reuters) - Talks to get stalled global trade talks back on track are likely to end successfully, Brazilian Foreign Minister Celso Amorim said Saturday.

"I think that the momentum is such that it is difficult not to conclude (successfully)," he told reporters at the World Trade Organization's headquarters in Geneva.

Key WTO members struck deals earlier Saturday on a package of farm trade proposals including the eventual elimination of farm export subsidies, and an accord on wording for an agreement covering industrial goods trade.

"This is the beginning of the end for (farm) subsidies. Export subsidies will be eliminated first," Amorim said.

Any deal would have to be signed off by the WTO's full 147-member body, which was expected to meet later Saturday.

7. WTO Deals New Blow to 'Big Power' Farm Subsidies
Wed Aug 4, 9:04 PM ET
By Richard Waddington and Andrew Hay

GENEVA/BRASILIA (Reuters) - Brazil, Australia and Thailand won a clear victory against the European Union (news - web sites) on Wednesday in a row over sugar subsidies that could have a big impact on world farm trade talks, Brazilian officials said.

Brazil celebrated the preliminary decision by the World Trade Organization (news - web sites), saying it should reduce Europe's sugar exports, after the complaint brought by the three countries against the EU's sugar policies.

"This decision has given another important step in the elimination of distortions in international agricultural product markets," Brazilian Foreign Minister Celso Amorim said in a statement, where he expressed "great satisfaction."

Brazilian Agriculture Minister Roberto Rodrigues said the ruling would force the EU to cease exporting two million tons of sugar starting 2005 while Brazil would export 10 percent more. Brazil is the world's largest sugar producer and exporter.

"Brazil has won on pretty much all counts," said a source with knowledge of the case.

In Brussels, EU Commission spokeswoman Arancha Gonzalez declined comment and said WTO rules barred public reaction to confidential rulings. "We will now carefully study the interim report as well as our options in this dispute," she said.

Development agency Oxfam called it "a triumph for developing countries and a death knell for unfair EU sugar export subsidies."

American Sugar Alliance chief economist Jack Roney welcomed the ruling, but said Brazil was guilty of subsidizing sugar through three decades of government support for ethanol.

"We're not going to do a lot to restore health to the world sugar market ... if we're just focusing on (the EU). We've got to get everybody at the table and that includes Brazil, which is by far the world's largest sugar exporter and has the most pernicious effect on the world market," he said.

This is the second time in recent months that Brazil has won a case against a major power's farm subsidies.

In April, the WTO told Washington to halt much of the aid it gives its estimated 25,000 cotton farmers, ruling it illegal, sources close to the case said. That ruling has not yet been made public.


"The (WTO arbitration) panels are showing that not only are the (WTO) rules fragile but even more than that, they are not being complied with by the big subsidizers," said Clodoaldo Hugueney, Brazil's top WTO negotiator.

WTO states agreed over the weekend, after marathon talks, to push ahead with detailed negotiations on slashing farm subsidies and eventually eliminating all direct aid to exporters. But it could be years before any deal is concluded under the WTO's Doha Round of free trade negotiations.

Hugueney said the verdict raised chances of a sweeping overhaul of current WTO rules on the estimated 90 billion euros ($108 billion) in domestic subsidies given to European farmers, and nearly $40 billion given to U.S. farmers.

Brussels says its sugar policy is legal and has warned that a ruling against it could hurt poorer developing countries, notably in Africa and the Caribbean, who also benefit from its subsidy system.

The bloc has already announced plans to overhaul its expensive 35-year-old sugar regime to cut prices and reduce output, starting in July 2005. The plan has run into opposition from some of the bloc's 25 member states, including its top sugar producer France, who says that it could lead to thousands of job losses.

Brazil, Australia and Thailand argued that the EU, one of the world's largest exporters, broke WTO farm rules by exceeding limits on export subsidies laid down under the trade body's 1994 Agreement on Agriculture.

Wednesday's decision by a panel of WTO trade judges is a preliminary one. A final ruling should be released in September after both sides have had time to comment, although final WTO rulings almost never differ from initial ones.

With either side able to appeal, it could be another year before any decision takes effect.