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For soybean subsidies: Brazil could be challenged in WTO

The Brazilian government's recent move to grant an additional $454 million to Brazilian soybean farmers to offset sagging prices could make the country a target within the World Trade Organization.

With this sum, the total allocated for aid to Brazilian farmers reached roughly $1 billion for the 2005-06 season. Some countries could be preparing complaints in the WTO against Brazil's move. At least, this is the concern among Brazilian officials.

The aid package, specifically aimed to help farmers in the central west region of the country — the top soybean producing region of the country — guarantees a minimum price for the commodity growers. All farmers who sell soybeans at a price below production cost are entitled to receive the aid: a surplus payment by the government equivalent to between 40 cents and $1.60 per bushel.

“This could be understood as a direct subsidy to production,” said Brazilian Agricultural Foreign Relations secretary Célio Porto. “There could be some questionings in the future, it is true,” he said.

Brazil could lose favor in the WTO if it is charged with practicing exactly what Brazil says its adversaries, specifically the European Union (EU) and the United States, practice.

The country's political strength could fade on all fronts within the organization.

While there could be embarrassing questions from the WTO, Brazilian officials are quick to say that the move was completely by the book, and that the country is entitled to have acted as it has.

Currently, there is a 10 percent of Gross Value of Production (GVP) limit for subsidies for members of the WTO.

Brazil says the ceiling for direct government aid has not been reached. One problem is that Brazilian GVP has dropped significantly from last year, thus increasing the percentage.

Brazil is already preparing for a possible struggle within the WTO, this time in a different role — being accused of over-subsidizing its production. As a defense, Brazilian officials point to a study from the Organization for Economic Cooperation and Development (OECD) stating that Brazil's use of subsidies reached only 3 percent of its GVP between 2002 and 2004, way below the allowed maximum.

According to the OECD study, developed countries have spent sums that, on average, reach 30 percent of their GVP. In EU, there were subsidy rates as high as 37 percent of GVP during the same time frame. In the United States, the rates were about 17 percent, the study says.

Brazilian officials think they can dodge the bullets fired from its commercial competitors in the WTO. “This should not undermine at all the negotiations for subsidy reductions within the WTO,” said one official of the Agricultural Foreign Relations Department.

Although Brazilian officials think they are prepared to fight off international problems related to the new aid package, it is a different situation inside the country. Farmers, suffering from high debt and low prices, did not welcome the plan. They claim the time for aid has long passed and that this package does not get to the heart of the problem — farm debt.

“It doesn't address the real problem, our endemic debt burden,” said Homero Pereira, president of a growers association in Mato Grosso, the biggest soybean producing state in the country.

Farmers have already begun protesting against the lack of help they get from the Agricultural Ministry. What farmers really want is a renegotiation of about $3.5 billion in unsolved debts that go back to 1995.

“Without this renegotiation, no package that could help us,” said another farmers' association president.

“The renegotiation has already been announced with the last aid package. If there were another one coming, it would be to a specific region, not for all farmers,” Agricultural Minister Roberto Rodrigues said.

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