EU chems welcomes FTA with Mercosur, ethanol players to fight 'tooth and nail' against it

Author: Morgan Condon

2019/07/02

LONDON (ICIS)--EU chemicals trade group Cefic has welcomed the free trade agreement (FTA) between the EU and Latin America's Mercosur, which is expected to fully remove duties for 90% of the EU's chemicals exports to the five-country bloc.

Sugar cane used for production of biofuel ethanolThe bid to ease trading between the two markets will have the most prevalent effect on the ethanol market, which will have the most drastic liberalisation on import tariffs.

Mercosur is a trading bloc comprising Latin America's largest economy Brazil, Argentina, Paraguay, and Uruguay. Venezuela is a full member but has been suspended since 2016.

“This is very welcome for the development of bio-based chemistry in Europe,” said Cefic to ICIS.

ETHANOL, STICKING POINT
The new FTA establishes a 450,000 tonne/year quota for duty free ethanol to enter the EU, with a further 200,000 tonne/year of ethanol for all uses (including fuel) to be subject to Most Favoured Nation (MFN) tariffs set at one third.

This material would be phased into the EU market in six equal annual stages.

However, Cefic said it is “still checking whether the quota" would be administered on a first come, first served basis.

There will be regulations concerning where the imported material is coming from, with preferential tariff treatment based on a statement of origin for the material, provided by the exporter.

While customs authorities of importing countries may request administrative cooperation to obtain information from exporting countries, Cefic said that “direct verification visits by the customs authorities of the importing party to an exporter in the exporting party" would be be allowed.

Although the negotiations are yet to be finalised, the European renewable ethanol producers’ trade body ePure said the EU-Mercosur FTA would throw the region's ethanol industry “under the bus”.

Producers within ePure produced 5.84bn litres of ethanol in 2017, or about 4.61m tonnes.

That level of output would mean that a little under 14% of ethanol available in the EU could improve its tariff status, or reach a zero-tariff position, from 2020, when new rules are expected to come into force.

The trade body said the FTA would sacrifice the EU’s agricultural sector and compromise the EU’s decarbonisation strategy.

Sources from some of Europe's biggest ethanol producers said there will be opportunities to reduce ethanol import volume quotas as the agreement is ratified, while others say they will fight “tooth and nail” against its implementation.

"It still has to go through the parliament, and I expect some countries like France could protest," said one ethanol producer with business in that country.

Pictured: A plant in Brazil for production of biofuel ethanol using sugar cane as feedstock; archive image
Source: Sipa/Shutterstock

Focus article by Morgan Condon

Additional reporting by Will Beacham and Clare Pennington 

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