Legislation Tackles Unfair Ethanol Imports

Sen. Chuck Grassley introduces legislation to close loophole that may be used to bring Brazilian ethanol duty-free into the American market. Compiled by staff

Published on: Jul 9, 2004

Corn growers are criticizing Cargill for its plans to import Brazilian ethanol through El Salvador as a means to circumvent U.S. tariffs on imported ethanol. To stop the problem, Iowa Sen. Chuck Grassley plans to introduce legislation before the August recess to close a loophole that may be used to bring Brazilian ethanol duty-free into the American market.

Cargill plans to build a dehydration plant in El Salvador that will convert ethanol from Brazil into fuel grade ethanol. El Salvador is one of the nations covered under the Caribbean Basin Initiative (CBI), which allows up to 7% of the previous year's U.S. fuel grade ethanol production to be exempt from import duties.

"Just because this maneuver is allowed under the Caribbean Basin Initiative doesn't make it right," Grassley says. "These CBI provisions were intended to help create jobs in impoverished Central American and Caribbean countries, not to enable U.S. corporations to transship ethanol from countries like Brazil with little or no effect on jobs in the Caribbean."

Grassley is the chairman of the Senate Finance Committee, which has jurisdiction over trade regulations. The senator has fought the loophole and has taken steps to have foreign ethanol and biodiesel registered and tracked in the Volumetric Ethanol Excise Tax Credit bill which has passed the Senate three times and is part of both the pending highway bill and an international tax reform bill.

The National Corn Growers Association (NCGA) wrote a letter to Cargill executives in May expressing disappointment in the company's plans. "It is disheartening and curious why Cargill would decide to pursue an economic opportunity in Central America when farmers in Minnesota and throughout the Corn Belt are willing to invest their own capital to meet the domestic energy needs of our country," says NCGA President Dee Vaughan.

"What U.S. companies are doing today shows once again why it's bad policy to allow duty-free access to the U.S. market for ethanol that is merely dehydrated in the Caribbean region," Grassley says. "If the United States had wanted to grant duty-free treatment to ethanol from Brazil, then we could have given Brazil duty-free treatment under the Generalized System of Preferences program, but we decided not to do so." Grassley adds that the goal of the Caribbean Basin Initiative was to support meaningful economic development in the Caribbean region, and "not to facilitate pass-through operations that contribute little in the way of jobs and economic development."

Vaughan also expressed fear that Cargill's actions will erode support for the agricultural trade agenda in the United States. "Farmers and ranchers are already expressing frustration with free trade agreements, and import-sensitive commodities are rallying against efforts to lower tariffs and expand market opportunities," he says.