The Renewable Fuels Association is confident that U.S. ethanol trade policy conforms with World Trade Organization (WTO) regulations.
In response to recent comments by senators about the legality of the ethanol tariff, RFA Legislative Counsel Ed Hubbard authored an explanation on the E-xchange blog. According to Hubbard, the market-based structure of the Volumetric Ethanol Excise Tax Credit (VEETC) and the secondary tariff designed to offset tax benefits received by foreign imports of the fuel, precludes any claim or challenge to the U.S. ethanol program under the WTO.
In any WTO dispute settlement proceeding, the central point is who receives the financial contribution or subsidy. Because the recipient of the VEETC is the downstream blender, it would be very difficult for a complaining country to establish that their domestic industry is being adversely impacted by the U.S. tax incentive. Moreover, it would be nearly impossible to show that the complaining country’s industry was being sufficiently prejudiced by policy. Such a showing is required under WTO regulations.
Hubbard further explains that the secondary tariff is not a subsidy since it goes to the U.S. treasury, not ethanol producers. He notes that the secondary tariff is necessary to ensure that U.S. taxpayers are not subsidizing foreign ethanol producers and has been properly notified and scheduled according to WTO procedures.
*POST UPDATE*
Formally responding to comments made by Senator John McCain (R-AZ) and Senator John Barrasso (R-WY) that current ethanol tax and trade policies were illegal under World Trade Organization (WTO) agreements, the Renewable Fuels Association (RFA) today (1/18) sent a letter to each senator explaining why the tax incentive (VEETC) and the offsetting secondary tariff are WTO compliant.
“While agreeing to disagree about the efficacy of the ethanol tax incentives, I respectfully submit that your assessment of the policies’ compliance with WTO strictures is simply incorrect and not supported by any reasoned analysis or WTO precedent. We strongly disagree that this or any other part of the U.S. ethanol program is contrary to the WTO Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) or any other WTO regulation,” wrote RFA President Bob Dinneen.