US senator: Duty-free Brazilian ethanol is threat to US chems

31 March 2005 22:43 [Source: ICIS news]

WASHINGTON (CNI)--The chairman of the Senate Finance Committee is mounting an effort to keep Brazilian ethanol from entering the US duty-free to compete with American-made ethanol.

In a letter to a letter to the Bureau of Customs and Border Protection, Senator Charles Grassley (Republican-Iowa) requested a ruling on the eligibility of dehydrated ethanol produced by Angostura Holdings Limited (Angostura) - a Trinidad and Tobago company - to enter the US market duty-free.

Angostura is building an ethanol dehydration facility in Trinidad and Tobago, and the facility could be complete this summer. The plant will remove water from Brazilian ethanol feedstock, and Angostura plans to ship 100% of the ethanol it will dehydrate to the US.

Caribbean and Central American countries are allowed to export some ethanol to the US without paying a 54 cent (Euro41 cent)/gallon duty. Duty-free status is crucial to making the shipments economical and competitive with American-made ethanol.

Noting that European Union wine alcohol is dehydrated in nearby Jamaica, and given the current wine glut in Europe, Grassley said the possibility exists that Angostura might also dehydrate European wine alcohol feedstock for export to the US market.

In order for a product to qualify for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA), at least 35% of the value of the product must be added in CBERA beneficiary countries, such as Trinidad and Tobago.

But Grassley said a report recently released by the Export-Import Bank - which in 2004 approved credit guarantees for Angostura’s facility - stated that Angostura’s plant would add only about 10% in value to the Brazilian ethanol that Angostura will dehydrate.

As a result, Grassley said the value contributed by Angostura would fall well below CBERA’s 35% value-content requirement for duty-free entry. Moreover, he said the 10% value added by Angostura can in no way “normally be presumed” to meet the 35% test.

Said Grassley: “I’m asking Customs to determine whether duty-free entry should be provided to ethanol that will be merely dehydrated in a ‘pass-through’ operation located in a CBERA country. As a ‘pass-through’ operation, Angostura’s facility will provide little economic benefit to the Caribbean region, and thus not fulfill Congress’ objective in passing the CBERA."

At the same time, he argued, Angostura’s plant will enable Brazilian and possibly EU ethanol feedstock producers to avoid the payment of duties to the US.

Grassley's home state, Iowa, is the leading US producer of ethanol with 16 plants that can make 947m gallons a year.

The senator said he first became concerned about Angostura’s plant in 2004 when he learned that taxpayer-guaranteed credit insurance issued by the Export-Import Bank is being used to finance the facility’s construction.

“I have well-founded and continuing concerns that the issuance of credit guarantees by Exim Bank to Angostura violated the Exim Bank’s authorizing statute,” Grassley said. “For that reason, I added language to the conference report accompanying the 2005 consolidated appropriations bill directing Exim Bank to issue a report concerning its financing for Angostura."

Grassley said the Exim Bank’s report made it clear that Angostura’s facility will be a mere pass-through operation that will add little value to the non-CBERA ethanol it will dehydrate.

"I’m asking Customs to examine whether ethanol dehydrated by Angostura should receive duty-free treatment. I'm hoping that Customs will agree with us and keep that ethanol out," Grassley said.

By: Glenn Hess
+1 713 525 2653

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