Brazil in Focus

Brazil's Stake in Washington's Debt Row 

by Luiz Felipe Lampreia

The incredible imbroglio over the United States debt and budget deficit that roiled Washington - and the rest of world - could bring opportunities that not even the most fervent optimists might have imagined: the beginning of the end for US agriculture's protectionist stronghold. Even as I write, time honored privileges of the agricultural sector are under heavy attack in the US Congress.

This is no ordinary legislative squabble. In the US, rural lobbies over the years have won massive political concessions. It's the same story across the Atlantic where European farmers employ a mere 2% to 3% of the workforce but have managed to swallow up more than 50%% of the EU budget.

In Washington, Big Agriculture has harvested billions of public dollars to feed the troughs of producers both small and large. With true political artistry, European pressure groups convinced both politicians and voters that protectionism was vital to the defense of European tradition, hearth and home. It's as if they'd subpoenaed the founders of Old World heritage - say, Beethoven and Rousseau, both lovers of nature - to testify on the European farmers' behalf.

Less poetically, a minority of senators from the smaller grain belt states of the U.S. has succeeded in blocking all attempts at farm reform for decades. As a result, the American system of subsidies became a Christmas tree showering gifts on the agricultural sector. The largesse includes direct payments to growers, countercyclical subsidies to tide farmers through in economic slumps, price supports, disaster compensation and crop insurance. And yet these props to farmers have hurt both US consumers, who are forced to pay more to fill their shopping carts, as well as powerful companies that rely on agricultural products to make their own goods, from Corn Flakes to soft drinks. Never mind the developing countries that often pay the steepest price for such policies, facing surtaxes, import quotas or outright trade barriers on their more competitive farm goods.

In the US, the picture is about to change. Regardless of who wins the dangerous game of chicken between president Barack Obama and hardline Republicans, Big Agriculture is going to pay a high price. The US simply can no longer afford the Santa-like extravagance of its agricultural budget. Of course there is no silver bullet solution, but nor is there much doubt that lawmakers will slash at least $1 billion from the Farm Bill sometime this year or next, and up to 5 billion over the next decade.

With a modern agricultural sector, plenty of sun and rainfall, and a productive capacity that has yet to be fully tapped, Brazil stands to reap many advantages. I'll leave it to the experts to analyze the potential gains for Brazilian farmers and agribusiness, but it would be useful here to examine what impact the reordering of US agricultural policy will have on world trade and Brazil's stake in the World Trade Organization.

The story of the Doha Round of trade talks is a chronicle of a death foretold. Since 2001, negotiations have dragged on, as Brazilian singer Nora Ney croons in her storied lament, "from failure to failure through the long night." Few would wage money on its revival. The main reason for its failure has been the firewall of agricultural protectionism that rich nations have collectively raised from Japan to Norway, Switzerland to the US, and the EU to Canada. But everything changes if the US breaks ranks and starts tearing up its own garden of subsidies. If that happens, there is a real chance that WTO negotiations will take another tack.

US lawmakers will be loath to drastically cut subsidies without a quid pro quo from abroad. That means the Congress will push the president to aggressively demand international markets to open their doors and compensate US producers for the loss of government support at home.

And none too soon. Today, the US is considered the major obstacle to progress at WTO negotiations; the persistent high unemployment rate and growing fear over Chinese advances in the domestic market make embracing a more open trade policy too toxic for the political class. However, if the rules change in Washington, and if the world's biggest market and most powerful commercial power goes on the offensive on the agricultural front, the rules of the game for the Doha Round could change substantially.

That's a twist could alter assumptions about international trade that have remained unchanged for decades. It could help bring new life to the table of international trade talks and raise hopes of solid gains for competitive farmers from countries, like Brazil, that have learned to live without the crutch of subsidies. Obviously we are still in the realm of hypothesis, and any future negotiations, if they take place, would likely be prolonged and difficult. But any move to dismantle this decades-old system of subsidies would be an important advance against protectionism in the farmers' fields, and maybe beyond.

Luiz Felipe Lampreia served as Brazil's foreign minister from 1995 to 2001. This is a version of an article orginally published in O Globo. Translation by Roman Gautam.