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WTO Says EU Sugar Export Subsidies Are Illegal

The New York Times

August 5, 2004

W.T.O. Rules for Brazil in Sugar Dispute

By TODD BENSON

SAO PAULO, Brazil

Brazil scored its second triumph in less than two months on Wednesday at the World Trade Organization, which ruled that the European Union's sugar subsidies give its farmers an unfair advantage on global export markets, Brazilian officials said on Wednesday.

Sugar is one of the European Union's most heavily subsidized crops, and the government supports have helped European sugar producers become the second-largest exporters in the world, behind Brazil, which is also the largest sugar producer.

If the preliminary ruling is upheld by the W.T.O. in September, it could strengthen the hand of developing nations as they hammer out the details of a deal reached last weekend in Geneva, where the trade body's 147 members agreed to a negotiating framework to reduce farm subsidies in the rich nations by as much as 20 percent and cut import tariffs on everything from corn to soybeans.

The decision could also trigger a fresh wave of complaints at the W.T.O., which had already ruled in favor of Brazil in late June in a landmark case against the billions of dollars in annual subsidies that the United States pays cotton farmers.

''It's going to be very interesting to watch whether Brazil in particular is going to use its legal victories in cotton and now sugar to mount other cases,'' said Gary Hufbauer, a senior fellow and trade specialist at the Institute for International Economics in Washington, which describes itself as a private, nonprofit, nonpartisan research group devoted to the study of international economic policy supported by an annual budget of $7 million from charitable foundations, private corporations, and individuals.

''This is the really big question,'' Mr. Hufbauer, ''whether they're going to say, 'O.K., we've done enough and now it's time to negotiate,' or whether they say, 'Well, we're on a roll, so let's bring another case.'''

The particulars of Monday's ruling were not disclosed, but Brazilian officials said the decision favored their claims on most counts. The complaint, which Brazil filed in August 2003 along with Australia and Thailand, argued that the almost $2 billion in annual export subsidies that the European Union pays its sugar farmers encourage overproduction and artificially depress international prices.

The European Union sets quotas for sugar production for the European market, and farmers must export any surplus sugar at lower prices. In its complaint, Brazil accused the the European Union of exporting more subsidized sugar than is allowed under global trade agreements. Brussels has disputed that claim, insisting that Europe's practice of selling sugar bought from poor countries in Africa, the Caribbean and the Pacific basin should not be counted against permitted exports. The W.T.O. complaint brought by Brazil estimated that global sugar prices would rise almost 20 percent if Brussels scrapped its subsidies. Brazilian sugar producers claim they lose $500 million to $700 million in exports a year because of European subsidies.

Though Brazilian officials declined to discuss the ruling in detail, they said they were gratified.

''We're very satisfied,'' Clodoaldo Hugueney, the under secretary for economic affairs at Brazil's foreign ministry, said by telephone from Brasilia.

''This ruling, just like the cotton decision, confirms that there are immense distortions in international agricultural markets,'' Mr. Hugueney said. ''And it also confirms that serious negotiations need to take place to do away with farm subsidies, both for exports and domestic consumption.''

In Brussels, Arancha Gonzalez, a spokeswoman for the European Union's trade commissioner, Pascal Lamy, said European officials would not comment on the decision, according to Reuters. Many trade experts expect the European Union to appeal the decision if it is upheld next month.

The ruling came less than a month after the union's agriculture commissioner, Franz Fischler, proposed sweeping changes to Europe's 30-year-old sugar subsidy program. Under the proposal, which was met with criticism from Europe's 60,000 sugar beet farmers, Brussels would cut minimum price guarantees for producers by a third and cut production quotas to discourage dumping excess output on overseas markets.