Brazil sugar sector stirs over Indian subsidy

By Inae Riveras

SAO PAULO (Reuters) - Brazil's sugar industry has been putting pressure on the country's government to ask the World Trade Organization to request information from India on its sugar freight subsidy, industry sources said.

The subsidy, which aims to stimulate exports in order to reduce local stocks, was extended by one more year in October and, according to the Brazilian sector, does not comply with the WTO.

"We understand Indian exports have been subsidized, and the extension of this support makes us very worried," Sugar Cane Industry Union (Union) President Marcos Jank said.

The issue has been discussed by industry representatives and trade officials in Brasilia, but the private sector has not yet decided whether to present a formal request.

The industry now is working on a more detailed study on the assistance scheme to show it to the government.

"This is an export subsidy that violates article 9.4 of the Agreement on Agriculture, and we consider it questionable," Jank told Reuters by telephone, adding that India does not have a WTO commitment that enables the use of export subsidies.

The informal request to the WTO for more information is an initial step to the possible setting of an investigative panel.

India extended domestic freight subsidy in October by one year given to sugar mills which have been hit by a drop in international prices, caused by a world sugar glut.

So until April 2009, India's government is expected to offer sugar mills a subsidy of $30 to $35 per tonne to boost exports.

Encouraged by high sugar prices through mid-2006, India increased its planted area for cane and is expected to surpass Brazil as the world's top sugar producer this season.

Its sugar surplus has been forecast to rise to 11 million tonnes this year, up from 4 million tonnes in 2006.

"This assistance doesn't make sense as they are currently subsidizing international consumers as world prices fall. It's not good for them, nor for any exporter", Jank said.

He said India should divert subsidies to ethanol production, contributing not only to reduce the country's sugar surplus but also to solve its internal energy problem.

"This would be the fastest way. The other way is more complicated, a dispute, which we are obviously examining," he said.

TRADE PARTNERS

Australia and Thailand, other major sugar exporters, asked the WTO to seek details on India's subsidies. It was discussed at the WTO Agricultural Committee in Geneva in November.

India is now expected to respond to the request, but this could take months, according to specialists.

Both Australia and Thailand joined hands with Brazil in 2003 to demand the WTO open a formal probe into the European Union's sugar policy. The decision was favorable to the world's three top sugar exporters and forced the EU to dismantle its system.

Brazilian diplomacy would probably wait to see what India has to say before taking any action, international trade and negotiations specialist Elisabete Serodio said.

India's role as Brazil's major ally in the G20 developing countries group makes the issue more politically sensitive, especially while WTO's Doha round talks continue.

"Being in the middle of a trade round does not help, of course. Personally, I tend to believe Itamaraty (Brazil's Foreign Ministry) will let Australia and Thailand move ahead," Serodio said.