US tariff on Brazil ethanol firm amid loopholes

06 March 2008 19:16  [Source: ICIS news]

By William Lemos

SAO PAULO (ICIS news)--The US will continue to tax imports of Brazilian ethanol due to growing political clout by the US biofuels industry, leading market participants to exploit loopholes, a consultant said on Thursday.

“The ethanol industry is spreading to other [US] states, and the tariff is no longer something that interests only farmers in the Midwest,” said William Maloney, a consultant with ED & F Man Biofuels.

The US taxes Brazilian ethanol at 54 cents/gal.

Brazil fiercely opposes the tariff, claiming the restriction hurts free trade. The US industry supports the restriction, which it says is in place to keep US subsidies from benefiting foreign-made ethanol.

Maloney said Brazil would continue to ship ethanol to the US via Caribbean Basin Initiative (CBI) countries, and also through a loophole in US trade legislation known as duty drawback.

According to the consultant, the loophole is a favourite of big US oil companies, which import ethanol straight from Brazil, pay the 54 cents/gal tax, but reclaim the tariff through exports of jet fuel.

The tariff can be reclaimed for all jet fuel used in any US flight leaving for an international destination, Maloney said, adding that the US tax code considers that an “export” of jet fuel.

“Brazilian ethanol is coming into the US duty free through that system,” he said.

Another way to beat the tariff is by reclaiming the 54 cents/gal on regular fuel sold to the US army, a Brazilian producer said.

“That is also considered an export if the fuel is used in a place like Iraq,” the produer said.

Maloney expects the drawback loophole to be eventually closed due to pressure from the US industry.

“It could happen with the new Farm Bill,” he said.

But the consultant said Brazilian ethanol imports would still be an attractive option for the US southeast, where demand is poised to increase and logistics bottlenecks make it hard to get material from the Midwest.

“This would be an ideal market for imports,” he said.

Maloney spoke at F. O. Licht’s Sugar and Ethanol Brazil 2008. The event was organized in partnership with IBC Brasil.

For more on ethanol visit ICIS chemical intelligence

 Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels

 

By: William Lemos
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