Ethanol, Agriculture Groups Press Lighthizer on Brazil Tariff

Source: By Todd Neeley, DTN/Progressive Farmer • Posted: Tuesday, November 14, 2017

Grain and ethanol interests in the United States have asked the U.S. Trade Representative in a letter on Thursday to suspend Brazil’s designated country status as a result of a 20% tariff on ethanol exports to Brazil.

Representatives of the U.S. Grains Council, the Renewable Fuels Association and Growth Energy told Robert E. Lighthizer they intend to file a petition asking for a suspension of Brazil’s status in the Generalized System of Preferences.

The GSP is a preferential tariff system that provides for an exemption from general rules of the World Trade Organization. It is a system of exemption from the most-favored nation principle. It obliges WTO member countries to treat imports from all other WTO member countries, as those countries would treat their most-favored trading partners.

“Given their protectionist and market distorting actions in implementing a tariff rate quota that affects imports of U.S. ethanol, and pursuant to their obligations under 19 U.S. Code 2462, we believe that Brazil is no longer eligible for GSP trade benefits,” the letter said.

Brazil has implemented a two-year 20% tariff to be assessed on all current and future imports of ethanol exceeding a 159-million-gallon quota. U.S. producers export far more ethanol to Brazil as a whole.

“This action occurred even though Brazil and the U.S. agreed to zero-duty tariffs for ethanol beginning in 2010,” the letter said.

“Since the liberalization of the ethanol trade between the two countries, the United States and Brazil generally serve as top customers for each other’s ethanol exports. In marketing year (MY) 2016/2017, Brazil served as the United States ethanol industry’s largest export market, accounting for nearly 500 million gallons of American ethanol. Brazil too, has enjoyed a healthy trade relationship with the United States, reaching an ethanol trade surplus with the U.S. in eight of the last 10 calendar years.”

The groups point to a U.S. trade deficit with Brazil on agriculture products and ethanol as a concern.

“More broadly, Brazil exported $26.2 billion in goods to the United States including roughly $3.3 billion in agricultural products in 2016,” the letter said.

“Trade data provided by the United States Foreign Agricultural Service indicates that last year, the United States had a trade deficit with Brazil of $2.76 billion for agricultural products and ethanol.

“Despite this uneven trade relationship, the United States agricultural sector has seen Brazil as an important trading partner and valuable market for its goods and services, and as such, encouraged the designation of Brazil as a GSP country. Because of this designation, Brazil has become the third-largest beneficiary of the program at $2.2 billion worth of GSP eligible trade in 2016.”

The groups said their industries have been “unfairly targeted as a result and placed at a position of competitive disadvantage.”

On Aug. 23, 2017, Brazil’s Chamber of Foreign Trade imposed a two-year 20% tariff-rate quota system for ethanol imports.

Earlier this year a group of 10 U.S. senators asked Lighthizer to take action in response to Brazil’s implementation of the tariff.

On Sept. 7, the RFA, Growth Energy and USGC said in statements there needed to be an “immediate response” to the new tariffs because they threaten more than $750 million in U.S. exports and American jobs.

About 8% of ethanol produced in the United States is exported, with Brazil accounting for about 25% of those exports.

With concerns about the future of the Renewable Fuel Standard and whether higher ethanol blends will become more commonplace in the market, the U.S. ethanol industry has embarked in recent years on expanding into more export markets.