RFA wants trade distortion addressed in ethanol tariff talks

By Kris Bevill | December 08, 2011

The Renewable Fuels Association says it is not an advocate for extending the 54-cent per gallon import tariff on ethanol entering the U.S. (currently scheduled to expire on Dec. 31), but in a letter recently issued to leaders of the U.S. Chamber of Commerce and the U.S./Brazil Council, RFA President Bob Dinneen said it will take more than the end of the U.S. import tariff to usher in free ethanol trade between the two countries.

The U.S. Chamber of Commerce, the U.S./Brazil Council and UNICA - the Brazilian Sugarcane Industry Association are among the groups supporting the planned expiration of the tariff at the end of this year. Many members of Congress, particularly those representing California, are also in favor of the tariff’s expiration. The U.S. Chamber of Commerce and the U.S./Brazil Council recently submitted a letter to all members of Congress, urging them to allow the tariff to expire as planned, but Dinneen said they misrepresented some of the facts about ethanol and omitted any mention of Brazil’s recent trade distorting measures.

“Given the failed efforts to pass an ethanol tax reform package through Congress this summer, the U.S. ethanol industry is not seeking an extension of VEETC [the 45-cent per gallon Volumetric Ethanol Excise Tax Credit], and as such, does not believe there will be any future need to offset any tax benefits received by Brazilian ethanol,” Dinneen wrote. “However, before Congress allows this WTO [World Trade Organization] compliant tariff to expire, we think it is critical that Congress address the many Brazilian barriers to trade that are currently distorting trade between the two countries.”

Specifically, Dinneen claimed the recent reduction in Brazil’s ethanol-blending mandate, from 25 percent down to 20 percent, had “no other reasonable justification” than to reduce the amount of U.S. ethanol being imported into Brazil. “As a result of this mandated reduction in blend volumes, U.S. exports of ethanol to Brazil are being dramatically reduced from levels that would have otherwise occurred had Brazil left the mandate at 25 percent,” he wrote. “And, instead, Brazil is importing dirtier, more expensive petroleum-based gasoline to cover the additional demand.”

Dinneen also pointed out that while Brazil eliminated its own 20 percent import tariff in 2010, the removal was only temporary and is set to expire on Jan. 1, just one day after the U.S. tariff expires. “It is a bit inconsistent that the Brazil U.S. Council would fail to acknowledge such an important and material fact to Congress in its effort to promote Brazil exports,” Dinneen said in the letter.

Additionally, proponents of Brazilian sugarcane ethanol imports often claim that removing the tariff will reduce the cost of gasoline for consumers. Dinneen countered those claims by citing data from the California Energy Commission that showed ethanol imported from Brazil was approximately $1.50 more expensive per gallon than ethanol delivered from the Midwest.

On Dec. 2, Rep. Charles Rangel, D-N.Y., introduced a bill that would extend the ethanol import tariff for three years, stating that the tariff is necessary to protect ethanol dehydrators in Caribbean countries. The proposed legislation was applauded by the Caribbean Basin Ethanol Producers Association, which said thousands of jobs and millions of dollars will be lost in the region if the tariff expires.

George Fitch, executive director of the group, called Rangel’s proposal a win-win-win. “It is a win for the U.S. because it provides advanced biofuel for cleaner fuel to help meet the U.S. EPA mandate; for Brazil because it provides a well-established, long-term partner to process their alcohol for the U.S. market; and for the region by providing economic stability and security from an industry referred to as the success story of the Caribbean Basin Initiative,” he said.  “The real winners are the U.S. consumer and taxpayer who can continue to count on consistent supplies of advanced biofuels at competitive prices.”