via a special arrangement with Informa Economics, Inc.
Ethanol import tariff issue is far from
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
The following is a transcript of Grassley’s
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
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.
This column is copyrighted material, therefore reproduction or
retransmission is prohibited under U.S. copyright laws.