Brazil initiates WTO case against U.S. ethanol and farm subsidies

Earlier this year, the United States and Brazil pledged to collaborate on the development of biofuels technologies and markets in the Americas. Even though the agreement was hailed by Brazil as a recognition of its expertise and leadership in the sector, the country could not convince the U.S. to give up its trade barriers imposed on imported ethanol or its large farm and biofuel subsidies. To challenge this state of affairs, Brazil has now initiated [*Portuguese] a case against the U.S. at the World Trade Organisation (WTO), the global body that settles trade related disputes. The move could threaten the U.S. biofuel industry.

In Brazil, ethanol is produced in a highly efficient, sustainable and cost-effective manner, making the biofuel the most competitive available and considerably less costly than gasoline. Compared to ethanol made from corn in the U.S., Brazil's sugarcane ethanol is around 3 times less costly and has an energy balance 8 to 10 times stronger. Not surprisingly, the country is trying to create a global market for its green product and wants to export to the largest consumers. However, the U.S. protects its own ethanol producers by a steep $0.54 per gallon tariff, blocking direct imports. Moreover, American farmers and biofuel manufacturers receive lavish subsidies, estimated to cost U.S. tax payers as much as $5.1 billion in 2006 for ethanol alone (earlier post).

Brazil has now launched a case against the U.S. at the WTO. Trade negotiators of both countries will soon meet to discuss the issue of agricultural subsidies, in particular those offered to American maize farmers.

The move comes at a time when the U.S. presidential elections come closer and more and more candidates are speaking out in favor of locally produced ethanol. According to the Estado de S.Paulo [*Portuguese], these politicians are heavily influenced by the powerful corn and agribusiness lobbies, who want to shield themselves from much more competitive biofuels produced in the Global South. By promising ever higher subsidies, candidates hope to gain support from these lobbies.

The strategy of the Brazilian government is to focus on all American farm subsidies, which stretch from the cotton, sugar and soy sector to corn and many other commodities. These subsidies keep millions of farmers in the developing world in poverty. Brazil leads the G20, a group of developing and transition economies who work towards changing this state of affairs. And even though the group has achieved several successes, the crucial Doha Round of trade negotiations, aimed specifically at helping developing countries, still faces a deadlock, mainly over agricultural subsidies.

However, the case against U.S. farm subsidies, with a focus on biofuels, is receiving more and more support:
energy :: sustainability :: corn :: sugarcane :: ethanol :: biofuels :: tariff :: subsidies :: United States :: Brazil :: WTO ::

Besides the G20, Canada, potentially a large biodiesel producer, has joined Brazil as has India, the world's second largest sugar producer.

In a similar development, the governments of Sweden and the Netherlands launched a formal request for a study to be performed by the Organisation of Economic Cooperation and Development (OECD) to assess the damages brought about by farm subsidies and biofuel trade barriers both in the U.S. and the EU (earlier post). Sweden, one of Europe's leading green nations, wants all barriers for biofuels removed, so that a global trade can emerge that allows countries in the South to make use of their comparative advantages (more here).

Experts agree that biofuels offer one of the most important opportunities for the developing world to lift millions of farmers out of poverty. But for this to succeed, thorough trade reform is needed. Most recently, the chief of the UN's Food and Agriculture Organisation, spoke out about the issue in no uncertain terms (previous post).

Thanks Marcelo Acuna of EthanolBrasil.

References:
Agencia Estado: Brasil ataca etanol dos EUA na OMC - August 14, 2007.

Estado de Sao Paulo: Etanol vira bandeira eleitoral nos Estados Unidos - August 14, 2007.

Biopact: FAO chief calls for a 'Biopact' between the North and the South - August 15, 2007

Biopact: Sweden and Netherlands ask OECD to study unfair biofuel subsidies - May 20, 2007

Biopact: Sweden calls for international biofuels trade - August 11, 2007

Biopact: Subsidies for uncompetitive U.S. biofuels cost taxpayers billions - report - October 26, 2006