Grassley Sends Letter to USTR in Support of Ethanol Import Tariff

August 19, 2008 07:00 PM

via a special arrangement with Informa Economics, Inc.

Ethanol import tariff issue is far from over

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Sen. Chuck Grassley (R-Iowa) on Tuesday sent a letter to United States Trade Representative Susan Schwab to reassure her that the ethanol import tariff is explicitly permitted under World Trade Organization (WTO) rules. Grassley’s letter is in response to questions raised by Senator Dianne Feinstein (D-Calif.) to Schwab about whether the import tariff violates the rules of the World Trade Organization.

Grassley's case: “Besides the fact that the ethanol tariff is perfectly in line with WTO obligations, it is also in line with our domestic energy policy which focuses on using homegrown ethanol to help rural communities across the country rather than sending more dollars to the Middle East or Brazil,” Grassley said. “Brazil has yet to even take advantage of exporting ethanol duty-free to the United States through the Caribbean Basin Initiative. Until Brazil takes full advantage of its ability to export ethanol duty-free, I don’t see why we should give Brazilian ethanol more generous treatment.”

CBI factor: Brazil has the opportunity to ship ethanol to the US duty-free through the Caribbean Basin Initiative (CBI). Up to 7 percent of the US ethanol market can enter duty-free, however Grassley noted that this cap has not once been filled since it first became available in 1990.

The following is a transcript of Grassley’s letter:

Dear Ambassador Schwab:

“I am writing with regard to a letter sent to you by Senator Dianne Feinstein concerning the possible initiation of dispute settlement proceedings at the World Trade Organization (WTO) by Brazil over the U.S. tariff on ethanol. In her letter, Senator Feinstein requested that you analyze whether Brazil would 'have a substantive case that the ethanol tariff, as extended by the 2008 Farm Bill, is in violation of international law.'

“As you know, the United States is expressly permitted under the rules of the WTO to impose this tariff. Per Schedule XX - United States of America annexed to the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994, a tariff of 54 cents per gallon is bound in the U.S. schedule as a permitted 'other duty or charge.' Accordingly, it is clearly within the WTO rights of the United States to impose this tariff, and as such, the ethanol tariff is not at odds with the international legal obligations of the United States. Moreover, this tariff was accepted by consensus by members of the WTO-including Brazil- at the conclusion of the Uruguay Round trade negotiations.

“Senator Feinstein also asks whether lowering the U.S. ethanol tariff would improve the ability of the United States to prevail in a possible WTO dispute with Brazil. This question, however, is rendered moot by virtue of the fact that the tariff is fully compliant with the WTO obligations of the United States.

“Given that the U.S. ethanol tariff in its current form is explicitly permitted under WTO rules, I do not share Senator Feinstein's view that the possibility of a Brazilian challenge at the WTO should serve as an inducement for the United States to lower the tariff.

“Further, I remain opposed on policy grounds to a reduction in the ethanol tariff. The United States relies heavily on foreign energy sources, and it is imperative that we reduce this dependency. But a lowering of the ethanol tariff would move us in the wrong direction. Such an action would threaten to make the United States yet more dependent on imported energy. In addition, a reduction in the tariff could result in the United States sending even more dollars abroad to purchase fuels, dollars that would otherwise flow to
rural communities in the United States.

“In any case, Brazil can already ship ethanol to the U.S. market without paying tariffs. Through a carve-out in the Caribbean Basin Initiative (CBI), Brazilian ethanol that is merely dehydrated in a Caribbean country can enter the United States duty-free up to 7 percent of the U.S. ethanol market. While this duty-free access has been available to Brazil since 1990, Brazil has not once filled this 7 percent cap. As Brazil is not taking full advantage of its ability to export ethanol duty-free to the U.S. market, I fail to see why the United States should make its tariff treatment of Brazilian ethanol yet more generous by lowering the tariff.”

Comments: This issue is far from over -- especially if energy prices rally from their recent downturn. Also, recall that U.S. and European Union officials in the Doha Round negotiations had agreed to language that would have meant lower ethanol import duties. USDA Secretary Ed Schafer recently said he thought the import tariff should be lowered, but gradually. The Bush administration for several years has called for changes -- if not total elimination -- regarding the ethanol import tariff.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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