Paraguayan President Horacio Cartes has moved to remove a law that critics say could cripple the landlocked country's cereals and oilseeds export trade.

Businessman politician Cartes slapped a decree vetoing legislation before Congress that could have imposed a 10 percent tax on the grains exported by Paraguay, a mainstay for the economy.

Paraguay has only just recovered from several years of economic downturn, made worse by endemic water and electricity shortages, animal disease outbreaks on the farms and the effects of a diplomatic squeeze from the Mercosur regional trade bloc.

The center-right Colorado Party leader was elected in an April poll that ended Paraguay's political hiatus after last year's ouster by impeachment of former President Fernando Lugo. Cartes assumed office Aug. 15, succeeding caretaker President Federico Franco, who took over when Lugo was forced out of office.

Mercosur saw Lugo's ouster as a coup and suspended Paraguay from the trade bloc but in recent weeks has backtracked on the controversial move.

Cartes said the export tax, if imposed, could distort and set back the country's grain trade.

The bill has gone back to the legislature for further review. Analysts said Cartes' veto would be popular with the farmers and small traders who feared the export tax would be passed on to them and diminish their earnings.

Cartes aides argued Paraguay's cereals and oilseeds market rests on a system that allows big companies including multinationals to buy wheat, corn, sunflower and soy directly from the medium and small sized farm businesses.

Although seen initially as a boon to the treasury, Cartes argued the long-term effects of the tax would be detrimental to the agricultural sector.

He warned the tax levy could also attract objections from the World Trade Organization, Mercosur and other international partners as a potential barrier to trade.

Cartes likened the proposed tax to a declaration of war on the productive agricultural sector.

Paraguay is a major agricultural producer and one of the world's largest exporters of soybeans, behind Brazil, Argentina and the United States.

Almost all of Paraguay´s soybean crop is genetically modified grain, data from the U.S. Department of Agriculture says.