Anti-protectionism manual

Brazil is now a heavyweight player on the agricultural scene. Despite the global crisis, Brazilian agribusiness posted a trade surplus of over US$50bn in 2008, while agribusiness GDP grew almost 7% p.a. Exports of basic products represented 37% of overall exports last year. Data compiled by CEPEA (Center of Advanced Studies in Applied Economics) revealed that the Brazilian agricultural sector represented approximately 19% of national GDP.

So, what’s preventing even stronger growth in Brazil’s agricultural exports? One of the reasons is the protectionist policies of the world’s rich countries. Brazilian lawyer Adriana Dantas, who represents some of the main sectors of Brazilian industry (such as the ethanol, aeronautical and textile sectors) in the U.S., wrote a book to examine in detail the mechanisms of how these policies work: “Agricultural Subsidies – International Regulation” (Saraiva, 416 pages).
With a degree from the University of São Paulo, and professional experience in Brazil and Switzerland, Adriana currently works at King & Spalding LLP, one of the biggest law firms in Washington. In an interview to PIB, in Washington, Adriana pointed out that Brazil became a leader in agricultural exports due to its physical and natural conditions and its advanced technology, developed “with grit and determination”. On the other hand, she argues, the U.S. and the European Union are also leaders in the agricultural sector, mainly due to the subsidies in place since The Great Depression (in the U.S. case) or (in the latter case) sewn into the agreements that helped structure the creation of the European Union itself. “This is the result of a lobby structured decades ago...it’s big business”, states the author.

Inequality in numbers
The agricultural sector employs over two thirds of the population of the poorest countries, and represents on average one fifth of national income. World Bank data show that GDP growth derived from agriculture is 2.7 times more efficient in reducing poverty in Latin America than GDP growth generated outside the sector. However, despite the fact that developing countries are more economically dependent on agriculture, 12 of the world’s 15 largest exporters hail from the OECD, and represent 65% of global agricultural exports. This state of affairs would not be possible, notes Adriana, without the strong schemes protecting these countries´ agricultural producers. According to OECD studies designed to calculate the level of support provided by its member countries, the agricultural sector is the most distorted and subsidized – accounting for 38% of all the subsidies granted globally between 1994 and 1998.

A clear example of the power and sway held by the agricultural lobby in the U.S. was the recent controversy over the nomination of Thomas Shannon to the post of U.S. ambassador in Brazil. Like most democrats and academics in Washington, Shannon opposes the import tariff on Brazilian ethanol. But the powerful U.S. agricultural lobby, headed by a senator from Iowa, threatened to veto Shannon’s approval if the Obama administration didn’t confirm that it had no intention to interfere in the import tariff – which proved to be the case.

The U.S. rural lobby also had its say in the Climate Change Law, passed in June 2009. “The method adopted was, in fact, a cover-up to serve the interests of ethanol producers, who succeeded in postponing the decision on the criteria defining the type of “clean” ethanol, according to Adriana. Due to this scenario of persistent rejection of free competition, which was worsened by the global crisis, Adriana believes that “the time has now come for the Brazilian private sector to take an even more aggressive stance”.

The loopholes of the law
In her book, she suggests strategies and paths. For example, she assesses to what point the WTO international trade rules have helped change countries´ behavior, and investigates if the regime created by the WTO to govern the granting of agricultural subsidies has produced the desired results: of promoting the deregulation of global agricultural trade.
The conclusion is negative. Her book exposes the loopholes that continue to favor the interests of the most powerful countries in the WTO, while enabling, in practice, the protectionist policies to run roughshod over all the talk of deregulation. “These rules are extremely complex because they were made not to work”, says Adriana.

She explains that the U.S. and EU themselves were mainly responsible for creating the rules, and made room to accommodate their interests in the loopholes of the legal apparatus in place. “The very aim of my book was to break down this complexity, mainly for the private-sector players, who will be able to gain comparative advantages by facing the barriers and exploiting the opportunities that these very same rules create”, points out the author.

To shed further light on the situation, chapter 6 contains a detailed analysis of the difficulties and possibilities of activating subsidies mechanisms under the WTO Agreement on Subsidies and Countervailing Measures, revealing the loopholes that can facilitate the process. In summing up, Adriana concludes that agricultural producers and the Brazilian government need to be ready to fight on two fronts: in the legal arena, she stresses the need for a solid strategy to face the protectionism embedded into the current rules. But the political fight to change these rules also needs to move forward in forums such as the (WTO) Doha Negotiations, currently on standstill due to major bones of contention between rich and poor countries – an uncertain path, therefore, but one which Dantas believes should continue to be walked.

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