The Brazilian government’s tariff rate quota of 20% on imports of U.S. ethanol exceeding 198 million gal. expired on Aug. 31, and officials have yet to announce plans for the future of the U.S.-Brazil trade relationship. Without further action by the government of Brazil, all U.S. ethanol exports to the country face a 20% tariff.
Reports indicate that officials from the two nations are engaged in talks. Charging the 20% tariff would be a blow to the U.S. ethanol industry and electorally important Midwest states such as Iowa and Illinois. It may also further exacerbate trade tensions between the two countries after President Donald Trump last week reduced the cap on steel shipments allowed from Brazil.
By continuing to waive the tariff on U.S. imports and strengthening his relations with Trump, however, Brazil's President Jair Bolsonaro would risk angering his domestic ethanol industry, which has been hit hard by a pandemic-driven slump in demand. Reinstating the quota may also irk farming factions among Brazilian lawmakers who had opposed the measure unless the U.S. offered something in return, such as opening the market to imports of Brazilian sugar.
Brazil has been the largest export market for U.S. ethanol, importing 332 million gal. of U.S. ethanol worth $493 million in 2019. From 2012 to 2017, the Brazilian government had a zero-duty exemption for U.S. ethanol imports.
After regularly being top export markets in recent years, Brazil, China and Colombia imported virtually no U.S. ethanol in July due to the existence of unjustified trade barriers in those countries, the Renewable Fuels Assn. (RFA) noted, citing government data released Sept. 3.
Government data showed U.S. ethanol exports slumping to just 74 million gal. in July, down 38% compared to the same month last year and the lowest total for July in six years. The escalation of trade barriers and the impacts of the COVID-19 pandemic have caused year-to-date ethanol exports to slide 9% compared to the same period last year and 22% versus the same period in 2018.
"As the July export numbers show, the spread of protectionist trade barriers around the globe is having a very real impact on demand for U.S. ethanol,” RFA president and chief executive officer Geoff Cooper said, adding that “the situation is going from bad to worse, as just this week Brazil eliminated its tariff-free quota for U.S. ethanol and will now charge a 20% tariff on all U.S. ethanol imports."
He continued, "These tariff and non-tariff barriers must be addressed and countered with measures that ensure a fair and level playing field for ethanol trade. The persistent ethanol trade disputes involving key markets like Brazil, China and Colombia are taking a serious toll on U.S. ethanol producers, who are already contending with the economic fallout from COVID-19. More needs to be done to restore open and healthy ethanol trading relationships with our customers around the globe.”
Rep. Collin Peterson (D., Minn.), co-chair of the Congressional Biofuels Caucus and chair of the House Agriculture Committee, said, "American corn and ethanol producers are struggling to access domestic markets because of the coronavirus and the Environmental Protection Agency's reckless implementation of the Renewable Fuel Standard (RFS). Brazil's move to increase tariffs on American ethanol is more bad news for our producers. The Trump Administration should continue working with Brazilian officials to restore the duty-free access that was in place from 2012 to 2017."
Peterson added, “Tariff wars have consequences, and our biofuels producers are seeing that firsthand."
“The news from Brazil is the worst possible outcome for U.S. ethanol producers and comes at the worst possible time,” Iowa Renewable Fuels Assn. executive director Monte Shaw said. “The hypocrisy of Brazil to preach about free trade for ethanol and to enjoy that right when they send product to the United States while simultaneously putting a 20% barrier on our product is indefensible.”
Shaw noted, “While the Trump Administration cannot control the decisions of the Brazilian government, they can control the decisions of the EPA. With our largest export market now in jeopardy, there is no time to delay in restoring sanity to domestic biofuels markets. President Trump should immediately order the EPA to deny all pending RFS refinery exemption requests for being both unjustifiable and illegal. Farmers and biofuels producers need this action now, not uncertainty until after the election.”
Shaw also pointed out that Trump stated Aug. 10 that "his Administration would pursue an equalization of tariffs if Brazil took this step. We look forward to quick action on this front as Brazil continues to flood the California market with duty-free ethanol while at the same time penalizing U.S. producers. Farmers need markets during this difficult time, and President Trump can quickly take these two steps to expand domestic markets for ethanol.”