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Brazil and the WTO

Leader of the Pack

Kenneth Rapoza, World Press Review correspondent, Curitiba, Brazil, Sept. 25, 2003

Brazilian President Luiz Inácio Lula da Silva addresses the United Nations General Assembly in New York, Sept. 23. (Photo: AFP/Timothy A. Clary)

Driving along the so-called “coffee highway” south of São Paulo state on Route 277, one sees acres and acres of soy plantations and cattle farms. Sunsets are red and purple here; the soil is burgundy. Chickens and children walk along the highway. The rural poor who live in the area between the cities of Curitiba and Londrina can be seen working the land on either side of the road: If they can’t make a living off their own land, they work farms owned by the urban middle class or sell hand-made goods and honey to passersby. But few people stop. Because of the heat, fires often destroy crops and kill cattle, and smoke can block visibility along the road. Charred wrecks of crashed cars line the road.

Cattle rancher Bernardo Demeterco calls this region home. A middle-class Brazilian from the wealthy south, Demeterco receives no aid from the government, and says that this puts him at a disadvantage compared to ranchers in the United States and Europe. “We face higher prices every year, especially because of vaccines for the animals. Everything is priced in dollars,” he complains.

According to figures published in Londrina’s primary daily, Folha de Londrina, on Sept. 20, Brazil exports more beef than any other country—706.2 million tons annually, a figure that represents only 15 percent of the country’s total beef production. “We’ve never even received a loan,” Demeterco says. “Brazil is a poor country. We don’t have the resources to run massive loan programs.”

After the Sept. 14 collapse of the World Trade Organization (WTO) talks in Cancun, Brazil’s farmers are likely to be echoing Demeterco’s complaints for years to come. The Brazilian press is putting the blame squarely on the richer member states, saying they can’t stand competition, especially if it seems as though they might lose.

When the 146 member states of the WTO met on the Mexican coast earlier this month, most of the poorer states were hoping to reach a compromise to gradually reduce agricultural subsidies in the United States and European Union. Their goal was twofold: to open markets to food products from the developing world, and to protect small farmers in poor countries from the flood of imports from richer neighbors. Brazil, which relies on agriculture for 30 percent of its GDP, wanted the United States and other rich nations to cut subsidies to their farmers, thereby opening their markets to real competition from cheap Brazilian agricultural products, notably soy and sugar cane.

In 2002, the United States and European Union accounted for 57.7 percent of the US$6.24 trillion world agriculture market, while the countries that made up the group of 22 poor nations that formed a bloc in Cancun—China excepted—produce 12.3 percent collectively, according to World Bank and United Nations numbers published in São Paulo’s conservative Estado de São Paulo on Sept 8.

One area in which the United States competes directly with Brazil (and Argentina) is the European soy market. Normally, roughly half of the soy products Europe buys come from the United States, though this year Brazil might pick up some of the slack caused by a drop in the U.S. soy output. The United States produces about 80 million tons of soy a year; Brazil and Argentina together produce 93 million tons.

Following the WTO meeting, Ron Heck, president of the American Soybean Association, was quoted in the Sept. 15 edition of Estado de São Paulo as saying he would lobby Congress to pressure Brazil to end what he called “hidden subsidies.”

Talking time off from harvesting soy on his 3,500-acre farm in Perry, Iowa, Heck told World Press Review by telephone that Brazil’s government program to give small farmers loans at rates as low as 4 percent constituted a subsidy. The real interest rate in Brazil is closer to 20 percent.

“That’s a substantial subsidy because you’re getting money at below the rate of inflation,” Heck said, noting that he was unsure if the low-interest loans would be considered trade-distorting programs by WTO rules.

Another area of competition is the sugar-cane market. A study summarized in the Sept. 17 edition of the centrist newsmagazine Veja predicted that if rich nations eliminated sugar-cane subsidies and reduced trade barriers, poor countries would export nearly 15 million tons of sugar cane to Europe, the United States, and Japan. The study further concluded that Brazilian producers would reap the most benefits, gaining an estimated US$2.6 billion annually.

The United States has a maximum import allowance of 155,000 tons of Brazilian sugar cane. If Brazilians want to export more than the maximum allowance, they face a US$300-per-ton charge. “Brazil has to look for markets elsewhere,” José Nilton, a sugar-cane specialist at the Ministry of Agriculture in Brasília, told WPR. “The United States, logically, wants to protect its producers. But those who suffer are the consumers, who pay three times the international market rate.”

Brazil may be the only country among the poorer nations in the WTO with both the political will and the critical mass to challenge the Western economic superpowers on this question. On Sept. 23, when Brazilian President Luiz Inácio Lula da Silva opened the U.N. General Assembly meeting in New York, he took the opportunity to criticize subsidies and commercial barriers to food products from emerging markets. In August, 19 nations, led by Brazil, formulated a unified proposal on the agricultural question at WTO headquarters in Geneva. Initially, the bloc included Brazil, India, and South Africa, but it wasn’t long before China and 15 other countries came aboard. The number of countries in the bloc reached 22 in Cancun. Their efforts led to an abrupt end to the talks, as both sides accused the other of inflexibility.

Judging from the response Lula got at speech at a supermarket convention in Rio de Janeiro on Sept. 15, the day after the Cancun negotiations ended, few Brazilians blame him for the collapse of the talks. Lula was frequently interrupted by applause as he talked about the creation of the G-22 group. “No one in Brazil is going to negotiate with their heads down or in some subordinate manner, but rather with our heads held high and defending the interests of the country,” he proclaimed.

Brazil’s leadership in the Southern Hemisphere is becoming evident. The Brazilian press celebrates the country’s new role even as it seems amazed by it. On Sept. 21, at the annual meeting of the World Bank and International Monetary Fund in Dubai, U.S. Treasury Secretary John Snow warmly praised Lula and his finance minister, Antonio Palocci, for their economic reforms. There is talk that Lula might be in line for the Nobel Peace Prize.

Palocci, who was cheered by Snow for keeping Brazil’s finances in order, responded to the praise by cheering Brazil’s standing up to the rich nations at the WTO. He accused the G-8 of maintaining protectionist measures while asking the developing world to tear theirs down, calling this an “intolerable hypocrisy.”

Palocci’s words have weight because of the influence he wields in the Lula government. The U.S. Department of State has identified him as an important voice, one that is considerably “out of tune with the aggressive commercial policies Brazil has adopted under Lula,” as Estado de São Paulo’s editors explained on Sept. 20.

In the Sept. 15 edition of São Paulo’s centrist weekly magazine Epoca, Brazil’s U.N. Development Program representative, Carlos Lopes, wrote that Brazil and its major allies, South Africa and India, should take advantage of the “prevailing winds” to jump-start a “new multilateralism” in world affairs.

At the WTO opening ceremonies, Ruben Ricupero, a Brazilian who serves as the secretary-general of the U.N. Conference on Trade and Development, even went so far as to say that removing subsidies was a question of human dignity. Reporting from Cancun on Sept. 10, Estado de São Paulo writer Fábio Alves summarized Ricupero thus: “Trade issues don’t receive the same treatment in the press as wars and climatic catastrophes, but they cause the same damage and the victims can be counted in the billions.”

Ricupero’s comments provoked some anti-Brazil rhetoric. European Agricultural Commissioner Franz Fischler said Brazil was leading a group that had “out-of-this-world” ideas. His comment provoked a rebuke at the WTO meeting from Brazil’s foreign minister, Celso Amorim, whom Veja magazine quoted as saying, “The European Commissioner is Austrian and lives above the cold clouds of the Alps. He needs to descend to the valley of international commerce, where even here it is indecently controlled by rich nations.”

In an article published in the Financial Times on Sept. 22, U.S. trade representative Robert Zoellick thrice blamed Brazil for the collapse of the negotiations. The story made the rounds in the Brazilian press. Zoellick said that thanks to Brazil, the poor countries “lost an opportunity to get rich countries to gradually open their markets.” In the past, Zoellick has said that he is all for the United States removing subsidies and lowering barriers if Europe and Japan do the same. But he said the United States would seek bilateral free-trade agreements after the collapse of the Cancun talks. He also noted that Brazil had a 37-percent agricultural trade barrier for foreign food products, while the United States averaged 12 percent.

Brazil’s Agriculture Ministry disputes Zoellick’s figures and counters that Brazil’s average trade tariff is only 35 percent, well within WTO rules. Moreover, the ministry says, the average U.S. trade tariff on the 20 agricultural products Brazil exports to the United States is 39 percent over cost. “It simply isn’t true that Brazil has trade barriers above and beyond what the United States has,” a spokesman for the ministry retorted. “For our main agricultural imports, Brazil has no protections among its trade partners in Mercosul.”

Clovis Rossi, a writer for São Paulo’s liberal Folha de São Paulo, likewise called Zoellick’s comments “an open declaration of war against Brazil, with the explicit threat to leave Brazil behind in international trade negotiations. Zoellick divided the WTO meeting participants into countries that ‘can do’ and countries that ‘won’t do’. Brazil clearly fell in the second category: Countries that don’t want trade liberalization.”

Even before Cancun, the WTO had been a constant news item in Brazil. On Aug. 26, Estado de São Paulo’s Geneva correspondent Jamil Chade reported of the draft agreement. “For many developing nations,” he wrote, “The text is already an endorsement of an agreement made between Brussels and Washington two weeks ago. The text doesn’t put an end to subsidies, and is being forced to be accepted by the governments.”

In the same paper, in a Sept. 4 story about a new book by non-governmental organization activists Aileen Kwa and Fatoumato Jawara, Behind the Scenes at the WTO, Chade noted that the authors describe how WTO ambassadors were forced to step down for opposing Washington and Brussels. Kwa and Jawara report that Zoellick asked the White House to change its position on tough negotiators in the Southern Hemisphere by threatening to put them on a list of “enemy nations,” Chade wrote. The book concluded that Brazil “is capable of leading a counteroffensive” that would “influence trade negotiations.”

A day earlier, Rio de Janeiro’s centrist O Globo published a transcript of an interview with Federico Cuello, a dissenting WTO ambassador from the Dominican Republic, who said he was pressured to resign because of his position on subsidies and tariffs. Responding to a question about Brazil’s power in the Cancun negotiations, Cuello said, “Brazil embodies the hope of countries like the Dominican Republic, showing that you can still have dignity at the negotiation table. Brazil has its interests, and I don’t believe it will step down or move toward bilateral negotiations.…I doubt that Lula, who has massive public support and a top-notch cabinet, will be intimidated by pressure or threats.”

On June 18, São Paulo’s conservative business daily Gazeta Mercantil ran a story that hinted at just how concerned the United States was about Brazilian competition. The story quoted a U.S. Department of Agriculture document that said: “Brazil’s agricultural future has enormous potential, and the figures that have been given regarding the scope of a possible agricultural expansion have been grossly underestimated.”

Whether, under Brazil’s leadership, the G-22 nations can prevail in their struggle to lower agricultural subsidies in rich countries may depend on how they treat their own farmers.

Back in Parana state, cattle rancher Bernardo Demeterco laughs and declares that he is all for subsidies—if they benefit him. “If I were American, I’d want the government to protect me and the other farmers, like a family,” he says. Laughing again, he suggests, “Maybe you Americans can convince our government to protect us, too.”