Duties Call

Cindy Zimmerman

Demand for ethanol is up and it is becoming evident that domestic production will not be able to supply it all. So, the possibility of lifting the current import tariffs on ethanol, particularly from Brazil, is being raised in Washington.
A Reuters article today says “Congress seems unlikely to lift import duties on much-needed ethanol to meet a domestic shortfall in the fuel additive due to opposition from U.S. producers and farmers.”
However, the article also goes on to say that Senator Saxby Chambliss, head of the Senate Agriculture Committee, told Reuters on Tuesday that Congress has no plans to consider tariff cuts this year, but he said such a move was not out of the question. “We’d be foolish not to consider it … if it benefits the energy community, particularly if at the same time it benefits our farmers,” Chambliss said. U.S. Agriculture Secretary Mike Johanns said this week he had not discussed lifting the tariffs on Brazilian ethanol.
Just because the “farm lobby” is against lifting the import duty doesn’t mean it’s not going to happen. The very powerful sugar industry was adamently opposed to the CAFTA-DR and lobbied heavily against its passage by Congress – but it did pass. So, it is possible.
Even though, as the article notes, Brazil is “slapped with a 2.5 percent ad valorem tariff and a second duty of 54 cents per gallon” on its exports of sugarcane-based ethanol to the U.S. – shipments from Brazil are expected to range from 60 million to 70 million gallons this year. Point being, there is nothing actually stopping Brazilian ethanol from coming here, the tariffs are simply designed to offset “the 51 cents per gallon tax credit the United States provides for blending 10 percent ethanol into gasoline” which may or may not be fair, depending on your viewpoint.
The article also quotes Renewable Fuels Association president Bob Dineen on the issue admitting that domestic production will not be able to meet demand, but still opposing the lifting of import tariffs.
Dinneen said supply problems that may result are no reason to lift duties on Brazilian ethanol imports, as the Brazilian government already subsidizes its domestic ethanol producers. “The Brazilians would love to have us subsidize their product (by easing our duties). But I don’t see a serious effort to do that in the Congress,” he said.
That may change and the ethanol industry may have to accept some compromise on the matter. But, like any industry – from cotton to steel – they are going to be protective of their protection and want to hang on to it for as long as possible, which is to be expected.

Ethanol, Government