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Published September 17, 2007, 12:00 AM

Brazil seeks WTO probe of U.S. subsidies

GENEVA - Brazil will ask the World Trade Organization to formally investigate U.S. farm subsidy programs, which it says includes payments for ethanol production, a senior Brazilian official say.

By: By Bradley S. Klapper, Associated Press

GENEVA - Brazil will ask the World Trade Organization to formally investigate U.S. farm subsidy programs, which it says includes payments for ethanol production, a senior Brazilian official say.

The South American country, which already has won a series of WTO rulings over U.S. cotton subsidies, will make its request for an investigative panel soon, says Roberto Azevedo, the Brazilian Foreign Ministry's trade chief.

The dispute could become a major case for the global commerce body, which has largely steered clear of energy issues in its 12-year history.

It also could become a hot topic for U.S. presidential candidates as they gear up for the January start of primary contests in Iowa, the American state that produces the most ethanol.

“Brazil will have to ask for a panel,” Azevedo says.

Energy subsidies included

The two countries held consultations last month after Brazil accused the United States of exceeding in six of the last eight years the $19.1 billion that it is permitted under WTO rules to spend on the most controversial forms of farm subsidies. Brazil also accuses the U.S. of giving illegal export credit guarantees, largely echoing an earlier complaint by Canada.

While most of the measures questioned Washington about concerned farm produce, Brazil included in its complaint what it calls “energy subsidies,” which included tax exemptions on diesel fuel and gasoline.

“Ethanol results from agricultural subsidies,” Azevedo says. “You don't produce ethanol from rocks or underground. It's derived from agricultural commodities.”

Joe Glauber, the chief U.S. farm trade negotiator, disagrees.

“We don't feel that's appropriate,” he says. “We view the payments as industrial subsidies and we've notified all of them.”

Glauber won't comment on what a WTO investigation will mean. Azevedo says he is not sure when Brazil will formally ask the WTO to launch an investigation. The next meeting of the WTO's dispute settlement body is Sept. 25.

Azevedo and Glauber met Sept. 12 at the WTO to discuss the dispute.

Brazil's biofuelsBrazil has been touting its sugar cane-based ethanol around the world as a cheap, eco-friendly alternative to fossil fuels amid soaring oil prices and global warming concerns. While its business is booming, Brazil says exports have been held back by high U.S. and European tariffs.

The country says it also is worried about American subsidies to corn growers, who are devoting more than a quarter of their crop this year to ethanol, according to USDA estimates. The United States is the world's leading ethanol producer, while Brazil, the top sugar producer and exporter, is second.

Experts say that Latin America's largest nation could become the world's undisputed ethanol superpower because its sugar cane is more efficient for ethanol production than the corn used to make ethanol in the United States.

But corn ethanol has a lot of political support in the U.S., including from leading presidential candidates, and the crop is big business in Iowa. Farm states also could be crucial in the November 2008 elections for Congress, where Democrats hold only narrow majorities in both chambers.

The Bush administration has withheld details of U.S. farm subsidy programs from the WTO since 2001, but maintains that payments are within the rules.

Gretchen Hamel, a spokeswoman for the Office of the U.S. Trade Representative in Washington, reported two months ago that claims of wrongdoing were “unfounded when they were made by Canada, and they are just as unfounded when they are made by Brazil.”

First filedBrasilia first filed the complaint in July as the two countries blamed each other for the collapse of trade talks viewed as critical in the 151-member WTO's drive to conclude a new global commerce pact.

Brazil forced the U.S. to overhaul its subsidy programs for American cotton growers after winning a landmark WTO decision in 2004. American and Brazilian officials say that a confidential ruling in July by a WTO compliance panel found that U.S. cotton payments still were violating global trade rules.

The decision, which has yet to be released publicly, could prompt Brazil to seek retaliatory sanctions.

Critics of the subsidies say they unfairly deflate international prices, making it harder for poorer nations to develop their economies by selling their agriculture produce abroad.