December 29, 2010

Brazilian Ethanol Producers Going to WTO Over U.S. Subsidies

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The recent tax package passed by Congress kept in place an import tariff of US$ 0.54 per gallon (3.78 liters) on imported ethanol and Brazilian ethanol producers feel the tariff has always been directed squarely at their industry. Additionally, the tax package continued various subsidy programs for the U.S. ethanol industry that Brazilian ethanol producers feel are illegal under WTO rules. According to Jose Adriano da Silva Dias, director of the Bioenergy Producers Association of Parana (Alcopar), he thinks the U.S. is illegally subsidizing the U.S. ethanol industry in order to increase exports while at the same time keeping in place import tariffs on ethanol which acts to prohibit imports.

The Union of Sugarcane Industries in Brazil (Unica), which represents most of the sugarcane processing industry in Brazil, agrees and according to Marcos Jank, their president, his organization plans to initiate litigation against the U.S. ethanol subsidies with the WTO in early 2011.

Brazilian ethanol producers are particularly upset about the import tariffs on Brazilian ethanol which they blame for a reduction of Brazilian ethanol exports. Brazilian ethanol exports are expected to decline 48% in 2010/11 compared to 2009/10. During the 2010/11 marketing year, Brazilian ethanol exports are expected to be 1.5 billion liters, which is significantly below the prior peak of 4.5 billion liters.

At the same time, U.S. ethanol exports are booming. According the Renewable Fuels Association, U.S. ethanol exports could hit 1.3 billion liters in 2010. During the January-October period, U.S. ethanol exports have already surpassed 1.1 billion liters, which is twice as much as was exported in all of 2009.

The Brazilian threat of taking this issue to the WTO should not be taken lightly. Brazilian cotton producers also felt that the U.S. cotton program was illegal under WTO rules and they eventually won their case.