Uruguay to contest U.S. rice subsidies

Posted August 19, 2005 (Dow Jones via CropChoice, July 27, 2005): Uruguay is making plans to file a case against U.S. rice subsidies at the World Trade Organization, Hugo Manini, president of the Uruguayan Rice Growers Association, said late Tuesday.

"The Uruguayan government will file the claim for us," Manini said in a telephone interview with Dow Jones Newswires. "We've consulted three major U.S. law firms about this, and each one assured us that we will win the case."

Uruguay, a tiny South American nation of just 3 million people, is the world's seventh-leading rice exporter, according to Manini. Rice accounts for almost 10% of all Uruguayan exports, he said.

"Rice is vital to our economy," he said. "We don't have the option of producing other crops because this is a country where it rains a great deal. So we have to defend rice production."

Manini said U.S. subsidies are harmful because they artificially lower the price of rice in the world market, making it hard for Uruguayan farmers to compete.

The U.S. is the world's No. 3 rice exporter, but critics, including Uruguay and a host of other developing nations and trade groups, say U.S. farmers have an unfair advantage.

It costs U.S. farmers twice as much to produce rice as it does for farmers in developing countries like Thailand and Vietnam, the world's top rice exporters, according to Oxfam, a U.K.-based nonprofit group that works to end poverty.

"In 2003 the U.S. government plowed $1.3 billion into rice sector subsidies, supporting farmers to produce a crop that cost them $1.8 billion to grow, effectively footing the bill for 72% of the cost of production," according to Oxfam.

Manini said those subsidies make it impossible for farmers outside the U.S. to compete fairly in a highly competitive global market.

"U.S. farmers sell rice at below-market prices and we can't compete with farmers whose products are subsidized," he said.

Manini said the subsidies have always been bad for Uruguay, but they are even more damaging now that Brazil, which normally buys the vast bulk of Uruguay's rice exports, is producing more of its own rice.

"There have been years in which 90% of our rice went to Brazil," Manini said. "But thanks to Brazil's aggressive rice policies, Brazil is becoming self-sufficient. It will no longer need to import rice."

Between March 2004 and February 2005, Uruguay exported 855,812 tons of rice to 26 countries, according to the growers association. But most of that is heavily concentrated in a few markets.

About 56% of exports went to Brazil, while almost 20% went to Iran and 12% went to Peru.

"To avoid problems we need to open new markets," Manini said. "We have no animosity toward the U.S. We just don't want our export revenue to disappear. We can't stop producing rice and just put in casinos and live off of that. Producing rice creates a lot of jobs."

Manini said Uruguay was inspired by Brazil's success at the WTO, where it won a ruling against U.S. cotton subsidies. He said Brazil might even back Uruguay's case.

Brazilian analysts say that recent failures to make global trade rules more fair mean that Uruguay's case is one of many that are likely to hit the WTO in the future.

"The stalled progress of the Doha round (of WTO trade talks) will fatally lead to more disputes at the WTO," said to Pedro Camargo Neto, an adviser to Brazil's Rural Society, who is also the ex-Agriculture Ministry secretary that brought the cotton case against the U.S.

Interestingly enough, many of the rice producers in Uruguay are Brazilians, or descendants of Brazilians, who populated border regions in the 1950s.

Uruguay's trade troubles are not limited to its complaint with the U.S.

Rice farmers on the Brazilian side of the border have protested imports from Uruguay since the formation of the South American trade bloc known as Mercosur, whose permanent members include Argentina, Brazil, Paraguay and Uruguay.

Brazilian farmers blocked the border in June to protest cheap Uruguayan imports.

Meanwhile, Oxfam has warned that subsidies in the U.S., Japan and the European Union can have a negative impact on agricultural production and rural employment in developing nations.

"In 1995 the International Monetary Fund forced the Haitian government to cut its rice tariffs from 35% to just 3%," according to Oxfam. "As a result, imports increased 150% in nine years and today three out of every four plates of rice eaten in Haiti comes from the U.S."

Oxfam says Haiti's rice-producing regions now suffer from high levels of unemployment, malnutrition and poverty.

In Uruguay, exports - which account for about 95% of rice production - bring in about $200 million annually and provide work to thousands of farmers.

Manini is confident this will not change.

"We're looking to the future, looking forward to competing on a level playing field," he said. "We're one of the countries that most efficiently produces rice and we can compete with anyone in fair conditions. We're not filing this case to distance ourselves from the world of trade but rather to make sure that it is fair."

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