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May 4, 2015

Brazil Prepares Case against U.S. Concerning Illegal Ag Subsidizes

As President Rousseff prepares for her visit to Washington in June, the Brazilian government has indicated that they feel the U.S. Farm Program is illegally subsidizing the prices of corn and soybeans to the detriment of Brazilian farmers. It is expected that Brazil might present their case to the Agricultural Commission of the World Trade Organization as soon as early in 2016.

This is part of the backdrop as President Rousseff prepares to meet with President Obama next month. Her trip to Washington, which was originally scheduled for 2013, was canceled due to charges of espionage of her personal communications. Only after a year of intense negotiations was her visit rescheduled for this June. President Rousseff is not expected to address this trade issue directly with President Obama, but it will be part of the discussions leading up to her visit. One of the principal objectives of the visit is to increase commercial ties between the two largest economies in the Americas.

Brazilian authorities feel that illegal subsidies in the U.S. Farm Program are resulting in lower corn and soybean prices. According to Reuters, a study conducted by the consulting agency Agroicone, estimated that the subsidizes reduce the world corn and soybean prices by 4% and 3% respectively. For their part, USDA officials are confident that the U.S. Farm Program falls with the rules of the World Trade Organization.

In a presentation made in 2014, the then president of the National Confederation of Agriculture (CAN), Katia Abreu, indicated that Brazil could demand as much as $ 500 million per year in compensation for the price distortions caused by what they consider are illegal subsidizes. Ms. Abreu is now the Brazilian Minister of Agriculture. CAN officials feel that if corn and soybean prices remain at these depressed levels or move even lower, the amount of illegal subsidies could actually increase.

Brazilian authorities plan to continue gathering more evidence as the U.S. growing season progresses in order to bolster their argument concerning the subsidies. In the meantime, Brazilian officials will continue pressuring the U.S. government for more transparency concerning the suspect subsidizes.

In a similar dispute initiated in 2004, Brazil was successful in arguing that the U.S. cotton program was illegally subsidizing cotton producers in the U.S. As a result, the U.S. government ended up paying hundreds of millions of dollars in compensation to Brazilian cotton producers.