Brazil is poised to begin WTO protest over ethanol tariffs

GENEVA: Brazil is likely to ask the World Trade Organization to open a blockbuster case into U.S. ethanol tariffs, a senior official said Wednesday, outlining the first possible dispute to arise as a result of this week's global trade talks collapse. Roberto Azevedo, Brazil's WTO ambassador, said there was a "strong possibility" that the Latin American country would make a formal complaint in September. Brazil would then be able to ask for the establishment of a WTO panel if a two-month consultation period with the United States fails to produce an agreement.

The case would concern a U.S. ethanol tariff of 54 cents per gallon, which critics say is designed to protect American corn farmers who cannot produce the fuel as cheaply as sugarcane growers in Brazil.

The U.S. considers ethanol the only U.S. product outside the scope of WTO rules, but Brazil would challenge this designation so that tariff cuts on the fuel would have to be a part of any future global trade pact.

Such an accord is unlikely in the short run after talks among the world's top commercial powers collapsed Tuesday, as a debate over farm import rules caused an unbridgeable divide between the United States and developing nations led by China and India. Brazil's move against the U.S. on ethanol may be one consequence of the talks' collapse, as it appeared Brazil would win help on its ethanol concerns in return for supporting a global deal.

Brazil, another emerging power, split with those allies and Mercosur trading partner Argentina by accepting a package laid out by WTO chief Pascal Lamy. In exchange, it sought massive new opportunities for its ethanol exporters from the U.S. and European Union, noting that petroleum products, such as gasoline, face no taxes.

Marcos Jank, head of Brazil's sugarcane industry association, said Monday he was pleased with the EU for offering to exempt some 1.7 billion liters (450 million gallons) of Brazilian ethanol from higher tariffs as part of an overall trade deal. He said the total volume - around the level of current Brazilian ethanol exports to the 27-nation EU - was insufficient, but added that it was important Brussels was negotiating on the basis that ethanol use would rise dramatically in the coming years.

Brazil would make billions of dollars (euros) from lower taxes on ethanol imports, but has struggled getting its fuel accepted as a cheap, eco-friendly alternative to fossil fuels. Any hope of an agreement on ethanol fell apart when WTO powers broke off negotiations Tuesday. There is speculation that a rash of new trade disputes could now follow, with U.S. subsidy programs for corn, rice, sugar and other farm commodities vulnerable.

The United States is the world's biggest ethanol producer, and U.S. President George W. Bush has made the fuel a central part of his plan to cut gasoline use by 20 percent by 2017. Brazil is second, but the largest exporter.

European governments have made similar targets to boost biofuel production, and Brazilian President Luiz Inacio Lula da Silva toured a number of EU countries last year to lobby for lower ethanol taxes.