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Cablegate: Two for Two: Brazil's Trade Policy Machine Delivers

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 SAO PAULO 001130

SIPDIS

STATE FOR U/S LARSON, WHA/BSC, AND EB/TPP/ABT
DEPARTMENT ALSO FOR WHA/PD
STATE PASS USTR FOR AJOHNSON
STATE PASS EPA FOR JANDERSON
STATE PASS FDA
USDA FOR U/S PENN
USDA FAS FOR ADMINISTRATOR ETERPSTRA
USDA APHIS FOR ADMINISTRATOR RDEHAVEN
USDA ARS FOR A/ADMINISTRATOR EKNIPLING
USDA FAS/FAA FOR A/WH AREA FOR JBAILEY
USDA FAS/ITP FOR PSHEIKH,WESTMAN, BGRUNENFELDER, BFREEMAN
USDA FAS/CMP/HTP FOR FTARRANT, RKNAPP
COMMERCEUSDOC FOR
4332/ITA/MAC/WH/OLAC/DMCDOUGAL/ADRISCOLL/JAND ERSON/WBASTION
USDOC FOR 3134/USFCS/OIO/EOLSON/DDEVITO

E.O. 12958: N/A
TAGS: EAGR ETRD TBIO PGOV KIPR BR
SUBJECT: Two for Two: Brazil's Trade Policy Machine Delivers
Another Hit in the WTO Arena


1) Summary: From the Ministry of Foreign Affairs
(Itamaraty) to the rolling sea of sugar cane on the
hillsides in the center-west of Sao Paulo state, Brazilian
agriculture is basking in its second international trade
policy victory in two months. Following a WTO Dispute
Panel's findings in favor of Brazil's claims against U.S.
domestic cotton supports in June, another Dispute Panel
agreed that Brazilian (and Thai and Australian) sugar
production/export interests were unfairly prejudiced by
European Union export subsidization. Now the media is
asking which will be the next developed country production
and/or trade policy to be targeted. End Summary.

2) According to comments by GOB officials and media
reports, the preliminary findings are that the WTO's
Ddispute Ppanel agrees in its preliminary findinghas agreed
with
Brazil's contention that EU export subsidies violated the
international trade organization's rules and denied
Brazilian, Australian and Thai producers close to $500
million in export earnings. It is noteworthy that as was
true with the WTO's ruling on U.S. domestic supports for
cotton growers, Brazil immediately trumpeted the results of
what is supposed to be a confidential preliminary report
available only to the concerned parties, thereby ignoring
WTO rules and tradition. The WTO's official judgment on
Brazil's case, for which Australia and Thailand are co-
plaintiffs, will be formally announced in late September,
but there is little to no reason to expect a difference
between what has been preliminarily revealed and the
official decision. In view of their success in this case
and given that Brazil is already the world's largest and
arguably most efficient sugar producer, industry and
government representatives alike are understandably bullish
about future production and export prospects.

3) While most expect the EU to go through the motions of
an appeal, once to the WTO's decision once it'sis finalized,
there are expectations thatis essentially no doubt that in
keeping with what is perceived as the EU's increasing
recognition of the need to curb its producer/trade supports,
this decision will prompt the EU to expand the process it
has already begun to reduce contribute to some de-
subsidization of itsin the EU's sugar industry. And
Brazilian producers are poised to fill any void created by
smaller EU output. Though speculation about eventual EU
compliance with the WTO decision may be premature with
regard to the eventual implementation leading from the WTO's
decision, starting as soon as 2005, some Sao Paulo based
observers are predicting a bounce in Brazilian sugar exports
of 2-4 million metric tons annually based on the expectation
that the EU will reduce the volume of its supply available
for export or, re-export, includingas is the case with EU
subsidies on sugar sourced from former colonies. There is
little to impede a sizable increase in Brazilian sugar cane
production. With only 5.5 million hectares currently
dedicated to this use nationwide, there are millions more
available that could be converted from pasture, citrus
groves or other crops in Sao Paulo state and new lands that
could be brought into production in Brazil's northeast,
albeit at a slower pace.

4) As a result of its recent WTO successes, the Brazilian
trade policy apparatus is increasingly confident in its
mission to promote and protect the interests of its
producers and those, as in the case of West African cotton
producers, of the lesser developed countries. In the media,
these WTO rulings have taken on a David versus Goliath aura.
To Brazil's agribusiness leadership, these have certainly
been just and fitting outcomes, and there is already
speculation about the next developed country commodity
program Brazil will challenge. Florida's agreement to
reduce its equalization excise tax on imported orange juice
concentrate earlier this year led Brazil to withdraw the WTO
case it had filed, and in view of the recent success of its
soybean producers, its purported complaint against U.S.
support for soybean growers has been shelved. Now, some are
suggesting Brazil will target U.S. anti-dumping policy as
applied to Brazil's shrimp industry. On the other hand,
with the WTO agreement on a framework to advance Doha-round
negotiations struck in Geneva at the end of July, it is not
clear what, if anything, Brazil will target next for litigation.
Duddy

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