Biofuels Fight Is Brewing Between U.S. and Brazil Over Ethanol

Source: By Mario Parker, Bloomberg • Posted: Monday, November 13, 2017

The U.S. biofuels industry, fresh off a win against Big Oil, is lining up for a fight with Brazil.

American ethanol producers said Thursday in a letter to U.S. Trade Representative Robert Lighthizer that they’re seeking Brazil’s suspension from a trade program allowing duty-free imports into the U.S. The move follows Brazil’s decision in August to slap a 20 percent tariff on ethanol shipments from the U.S. that exceed a 600 million-liter (158 million-gallon) annual quota.

The U.S. ethanol lobby was buoyed last month by President Donald Trump’s instruction to Environmental Protection Agency Administrator Scott Pruitt to support the Renewable Fuel Standard, a law mandating the use of fuels such as corn-based ethanol and soy-based biodiesel. Trump’s personal intervention came despite the objections of oil refiners.

The spat with Brazil also comes as the White House pursues a protectionist agenda in dealing with international trade. On Thursday, the Commerce Department set import duties on biodiesel from Indonesia and Argentina after U.S. producers said they were harmed by unfair state subsidies given to competitors in those countries.

The letter to Lighthizer was signed by three industry groups: The Renewable Fuels Association, Growth Energy and the U.S. Grains Council. Ethanol in the U.S. is made from corn, making the industry an important part of the farm lobby. Trump visited ethanol plants in Iowa during his presidential campaign and told the state’s voters he would stand by the biofuel if he was elected.

“It is fair to say that President Donald Trump’s administration has been actively and constructively engaged in every step of the way of this process,” Bob Dinneen, president of the Renewable Fuels Association, said Friday in a telephone interview.

Eligible Trade

Dinneen said the government has already signaled to Brazil there will be consequences for imposing the tariff. American ethanol exports to the country dropped 54 percent in August from January levels, data from the U.S. Energy Information Administration show.

No one at the U.S. Trade Representative or the Brazilian government immediately responded to requests for comment.

The ethanol groups are threatening to petition for Brazil’s suspension designated country status under the Generalized System of Preferences trade program, which allows duty-free imports to promote economic growth in other countries. Brazil is the third-largest beneficiary under the program, with $2.2 billion of eligible trade in 2016, the groups said in their letter. Brazil’s tariff violates the “spirit” of the program, they said.

Brazil didn’t violate World Trade Organization rules, Eduardo Leao, executive director of Unica, a sugar and ethanol industry group, said in an interview Friday. The tariff is being levied only on the amount of ethanol that exceeds 600 million liters, which is the average amount of imports in the three years through 2016.

“We made a courtesy to the Americans in taxing only what exceeds the quota.” Leao said.

— With assistance by Jennifer A Dlouhy