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Unfair Legislation to Extend Tariff

by Leticia Phillips on Dec 06, 2011

On December 2nd, four members of the U.S. House of Representatives introduced H.R. 3552 to extend the import tax on foreign ethanol. Saying that we are disappointed is a gross understatement, especially given that we are 26 days away from expiration and the momentum has been growing to bring a final end to this outdated policy. This handful of policy makers is trying to change the rules to help a few, and they’re doing it at the expense of the American taxpayer.

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On December 2nd, four members of the U.S. House of Representatives introduced H.R. 3552 to extend the import tax on foreign ethanol.  Saying that we are disappointed is a gross understatement, especially given that we are 26 days away from expiration and the momentum has been growing to bring a final end to this outdated policy.  This handful of policy makers is trying to change the rules to help a few, and they’re doing it at the expense of the American taxpayer.

Distorting the Rules on the Back of the Taxpayer

The United States has been subsidizing corn ethanol and imposing trade barriers on cleaner, cheaper ethanol from other countries for more than 30 years.  The stated rationale for the ethanol import tariff has always been to offset a tax credit intended for corn ethanol producers and therefore prevent Americans from subsidizing foreign energy production. This corn ethanol credit expires at the end of December, as should the justification for maintaining the corresponding ethanol import tax.  According to a letter from the U.S. Chamber of Commerce sent to Congress last week:

“These trade barriers prevent U.S. consumers from abundant and potentially more economical choices from friendly nations like Brazil…The elimination of the import tariff on foreign ethanol would create an open, competitive marketplace resulting in more choices for consumers, less global fuel price volatility, and perhaps most importantly, increased savings at the gas pump for U.S. drivers.”

However, certain parties who benefit from the current, anti-competitive arrangement and their allies in Congress are trying to change the rules by making the tariff a true trade barrier rather than a subsidy offset.  Special interests may cheer this increased trade protection, but the real losers are American drivers since the lack of competition will keep ethanol prices artificially high.  Such a blatant move to create further inequities will also risk a trade war between the United States and its trade partners, including friendly nations like Brazil.

Congressional Support for Expiration

America’s corn ethanol industry has blossomed into a thriving business.  In fact, this year the United States solidified its new position as the world’s largest ethanol producer and exporter – shipping an estimated 900 million gallons around the globe.  Half of America's exported ethanol winds up in Brazil, where it enters that country without paying a tariff.

Brazil, the world’s second largest producer and the leader in sugarcane ethanol, ended government subsidies for ethanol more than a decade ago and eliminated its import tariff on American ethanol in 2010.  America should do the same.  The U.S. Senate agrees and has made its position on the ethanol tariff and tax subsidy crystal clear by voting in a strongly bipartisan way to end both the tariff and tax credit earlier this year (73-27). We applaud Senators Coburn and Feinstein for their leadership to end the tariff and tax credit.  In addition, Congressmen Joe Crowley and Wally Herger have introduced a similar proposal in the House Ways and Means Committee (HR 2307) that would allow for cheaper and cleaner sugarcane ethanol to be available to U.S. consumers.  This bill also enjoys strong bipartisan support.

As the world’s top producers, the United States and Brazil need to lead by example in creating a free market for clean, renewable fuel.  That means putting an end to trade distorting tariffs on ethanol, once and for all.

copyright 2010 Brazilian Sugarcane Industry Association