Congressman proposes ethanol import tariff extension

By Kris Bevill | December 06, 2011

Rep. Charles Rangel, D-N.Y., introduced legislation on Dec. 2 that would extend the 54-cent per gallon ethanol import tariff, currently scheduled to expire at the end of this year, through 2014.

According to Rangel, the tariff extension is necessary in order to preserve the ethanol refining industry in Caribbean nations and protect it from reduced U.S. market share as a result of Brazilian ethanol entering the market. As part of the Caribbean Basin Economic Recovery Act and the U.S.-Caribbean Basin Trade Partnership Act, trade programs collectively known as the Caribbean Basin Initiative, certain Caribbean nations are allowed to export a percentage of dehydrated ethanol to the U.S. duty-free each year. “It is critical for U.S. businesses and consumers to help our partners in the Caribbean Basin Initiative retain a vibrant ethanol refining industry,” Rangel said in a statement.

Typically, Caribbean ethanol refineries exporting fuel ethanol to the U.S. import Brazilian hydrous ethanol and dehydrate it for shipment to the U.S. If the import tariff is allowed to expire, Brazilian sugarcane ethanol will no longer have to pay a premium to enter the U.S. and could bypass the dehydration step, giving Brazil an unfair advantage over CBI nations that could potentially devastate businesses in that region, he said. “It would also create market instability at a time when our country continues to steer a stable economic recovery,” Rangel added.

However, according to data recently released from the U.S. International Trade Commission ethanol imports from CBI countries have bottomed out and no longer play a role in the U.S. fuel ethanol supply. In a report evaluating the impact of CBERA on U.S. industries and consumers in 2009 and 2010, the USITC found that while fuel ethanol was at one point a significant portion of U.S. energy imports, developments in recent years have drastically reduced Caribbean ethanol imports. In fact, U.S. imports of fuel ethanol under CBERA fell 97 percent from 2008 to 2010 and no ethanol has been imported from those countries since March 2010. “This drastic plunge was caused by developments in the global sugar market and the domestic Brazilian ethanol market that results in lower exports of ethanol from the Brazil,” the USITC stated in its report. India’s poor sugarcane harvest in 2008-’09 drove up world sugar prices, which in turn diminished Brazil’s sugarcane-to-ethanol production as producers increased their sugar output to meet demand. At the same time, moderating corn prices and increased capacity utilization in the U.S. enabled domestic producers to churn out more ethanol. “These market conditions virtually shut off the supply of hydrous ethanol from Brazil that is used as a feedstock by CBERA dehydrators,” the USITC said in its report, adding that there are currently no economically viable alternative ethanol sources for CBERA refiners.

UNICA, the Brazilian Sugarcane Industry Association, remains staunchly opposed to the import tariff. The tariff was initially put in place to offset the 45-cent per gallon Volumetric Ethanol Excise Tax Credit, which is also scheduled to expire at the end of 2011. Without VEETC, UNICA has stated that there is no longer a need for the import tariff. Eliminating the tariff would expand the fuel ethanol marketplace, reduce fuel price volatility and potentially reduce fuel prices for consumers, according to Letisha Phillips, UNICA’s representative in North America. “However, certain parties who benefit from the current, anti-competitive arrangement and their allies in Congress are trying to change the rules by making the tariff a true trade barrier rather than a subsidy offset,” she said in a statement. “Such a blatant move to create further inequities will also risk a trade war between the United States and its trade partners, including friendly nations like Brazil.” 

Rangel’s bill, H.R. 3552, was co-sponsored by Dan Burton, R-Ind., Eliot Engel, D-N.Y., and Donald Payne, D-N.J., and has been referred to the House Committee on Ways and Means.