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Removal Of Brazilian Ethanol Import Duty Likely

Thursday, February 11, 2010

The Brazilian Sugarcane Industry Association (UNICA) is optimistic that the country’s 20% import duty on ethanol will be dropped by July 2010 despite Brazil's Chamber of Foreign Trade (CAMEX) deferral of the decision.

In a statement released on February 9, UNICA described CAMEX's decision as little more than a “bureaucratic delay". UNICA President and CEO, Marcos Jank, explained: "We are very encouraged by the statement from Brazil's Agriculture Minister, Reinhold Stephanes, who said after the meeting that it is 'highly probable' that the tariff on imported ethanol will be dropped as of July."

The Association has been putting pressure on the government to remove the tariff in the hopes that the move would be reciprocated by the United States. In order to speed up this process, Jank has urged the government to make an announcement as soon as possible, even if the measure is to only become effective in July.

UNICA originally asked CAMEX to remove the import duty in a letter sent in October of last year. UNICA believes free trade is a two-way street and Brazil, as the largest producer of cane ethanol and largest exporter of ethanol in the world, with 60% of the global market, should lead by example. "We should eliminate barriers, which would then allow Brazil to pursue similar measures from countries that keep their markets heavily protected," Jank explained.

The United States imposes two duties on ethanol imports: a 2.5% ad valorem tariff plus an additional ‘other duty or charge’ of USD0.54 per gallon. According to data from the US International Trade Commission (ITC), the combined duties have amounted to about a 30% tariff on ethanol imports, compared to the practically zero import duty applied to fossil fuels. Moreover, the ITC's own analysis last year recognized that reducing the duty on ethanol imports would lead to a net gain for the US that could reach USD356m annually, UNICA said.

As noted in a UNICA statement on January 21, the current Brazilian tariff has never been an inhibiting factor for imports. However, the existence of this tariff is often criticized abroad, in the course of discussions to open up ethanol markets, especially in the United States. UNICA expects the elimination of the 20% Brazilian tariff, formally requested on October 30, 2009, to become an important ingredient in these discussions to open markets and expand the use of fuel ethanol, transforming it into a global energy commodity.

UNICA officials have pointed out that the association's request to CAMEX last year has no connection with the possibility of eventual ethanol imports into Brazil because of current domestic fuel prices.

"This request was made months ago and has nothing to do with current market situations, and everything to do with promoting global free trade in clean energy," concluded Jank.