US embassy cable - 04SAOPAULO1130

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, Trade 
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