TRADE-BRAZIL: Sugar Industry Presses Gov’t to Protest EU Subsidies

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 2 2002 (IPS) - The local sugar industry warned the Brazilian government that its fight against protectionist trade practices will lose all semblance of credibility if it fails to take action in the World Trade Organisation (WTO) against European Union subsidies of sugar exports.

The biggest pressure on the government of Fernando Henrique Cardoso to file a complaint in the WTO is coming from the Union of the Sugar Cane Agribusiness of the State of Sao Paulo (UNICA), which represents more than two-thirds of Brazil’s sugar and fuel alcohol output.

The EU has failed to live up to the commitments to cut subsidies for farm exports assumed in the Uruguayan Round of talks, which gave rise to the WTO in 1995 and to today’s international trade rules, the president of UNICA, Eduardo Pereira de Carvalho, told IPS.

The three to four million tons of sugar exported annually by the EU, equivalent to 10 percent of global output, are obviously subsidised, since European production costs are not competitive, as they amount to four times the costs faced by producers in Sao Paulo, he maintained.

Global sugar production amounts to 130 million tons a year, although only 35 million are exported.

The Cardoso administration has failed to explain the reasons for its delay in filing a complaint against the EU. But analysts blame the government’s hesitation on the fear of reprisals within the WTO against the subsidies that Brazil itself grants sugar cane producers, through support for the country’s fuel alcohol programme.

Fears of possible damages to trade flows with the EU and to negotiations currently underway in the WTO are other factors reportedly holding Brasilia back from taking legal action.

If the EU stopped subsidising its sugar exports, Brazil’s sales of sugar would significantly expand, because this South American country of 162 million is “the world’s most efficient sugar producer, with infinite productive capacity,” said Pereira de Carvalho.

Around five million hectares are planted in sugar cane in Brazil, making Latin America’s giant the world’s leading sugar producer and exporter. But there are another 70 million hectares available for growing sugar cane, he pointed out.

That means Brazil should assume a leadership role with respect to legal action in the WTO, said Pereira de Carvalho, referring to the interest in joining the protests voiced by Australia, another big sugar exporter.

“We could have at least six allies” who have also been hurt by Europe’s subsidies, he added.

Pereira de Carvalho said that filing a complaint in the WTO would be a key step in the context of “the agriculture trade war,” because sugar has symbolic significance as one of the most heavily protected products in the world, in terms of the number of countries that have adopted protectionist measures, as well as the range of barriers in place.

For his part, the Agriculture Ministry’s secretary of production and marketing, Pedro Camargo Neto, said that although the “technical foundations” for taking legal action before the WTO exist, such a move would depend on a political decision by the Cardoso administration.

“This question has dragged on for nearly a year,” lamented Camargo Neto.

Brazil’s threats to file complaints have become a kind of joke in the Geneva-based WTO, because they are never carried out, according to correspondents writing in the Brazilian newspapers Gazeta Mercantil and O Estado de Sao Paulo.

Brazil’s passive stance purportedly led to its exclusion from the group of five big farm exporters and importers known as the “agricultural G-5”, made up of Australia, Canada, the United States, Japan and the EU, which met Jul 26-27 in the city of Nara in central Japan.

Since last year, the Brazilian government has been threatening to take international legal action against U.S. subsidies for soybeans and cotton, as well as EU sugar exports.

“These are all fundamental actions that must be taken due to a question of principles, even if we run the risk of losing,” said Antonio Donizeti Beraldo, the head of international trade affairs in the National Confederation of Agriculture, which groups the country’s agribusiness interests.

The case of sugar is more pressing, as it is the third most heavily subsidised product in the world, after dairy products and beef, and because European output is clearly uncompetitive, he added.

Brazil’s protest against the EU has unique features, because it criticises the failure to comply with commitments that were assumed, without demanding access to the European market, Elizabete Serodio, the head of sugar and fuel alcohol in the Brazilian government’s Special Programme on Exportation, told IPS.

The EU has reduced its subsidised exports of sugar produced in the bloc, as agreed for the 1995 to 2001 period, lowering the total volume of sales to around 1.3 million tons, which means that is not a focus of Brazil’s complaints, he pointed out.

But Serodio explained that the EU violates agreements it signed by re-exporting 1.3 million tons of sugar that it imports from former colonies in Africa, the Caribbean and the Pacific (ACP), which enjoy preferential tariff treatment.

The subsidies involved in that re-exportation process are evident, since the sugar imported from the ACP nations is paid at European market prices.

The EU also exports its surplus output, without price guarantees – in other words, in line with market prices. In practice, those exports are also subsidised, argue Brazilian growers and officials, since the sugar is sold at prices below production costs thanks to the heavy subsidisation of domestically consumed sugar.

The process is a complex one, and will require expenditure to cover the fees of highly specialised attorneys, said Pereira de Carvalho and Beraldo.

A triumph would mainly benefit Brazil, by giving it access to new markets. But it would also shore up prices for all sugar exporters, by reducing the distortions in agricultural trade, they argued.