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Brasher: Rivals challenge ethanol tariff

January 15, 2006

More motorists are putting ethanol in their cars. So many, in fact,
there are concerns that U.S. ethanol makers could start getting some
serious competition from overseas to fill that demand.

The United States imposes a 54-cent-a-gallon duty on imported fuel
ethanol that protects the U.S. industry from most foreign competition.

The tariff is intended to offset the federal tax subsidy that is the
financial underpinning of the U.S. industry.

Ethanol makers and corn growers are concerned that Brazil, a major
producer and user of fuel alcohol, will use the World Trade
Organization and the continuing Doha Round of negotiations to slash
that tariff.

This is no small matter for farmers and other investors who have been
pouring millions of dollars into ethanol plants throughout Iowa and the
rest of the country.

The energy bill that Congress passed last year requires U.S. motorists
to use 7.5 billion gallons of ethanol by 2012, and there are proposals
in Congress to boost that mandate much further. The industry now can
produce about 4.2 billion gallons a year.

"We aren't so naive to believe that Brazil won't stop their effort to
get access" to the U.S. market, said Matt Hartwig, a spokesman for the
Renewable Fuels Association.

Critics of the duty said it prevents U.S. motorists from potentially
getting access to cheaper sources of foreign ethanol. But to the U.S.
industry, the tariff ensures that Brazilian ethanol doesn't benefit
from the American subsidy.

Sen. Charles Grassley, R-Ia., considers the ethanol tariff a
nonnegotiable issue in the WTO talks or future trade negotiations.

He said he's made that position known to the Bush administration. As
Senate Finance Committee chairman, Grassley will be critical player in
getting any WTO agreement approved by Congress.

There would seem to be a simple way of doing away with the duty:
Restrict the federal subsidy to domestically produced ethanol. However,
congressional aides believe that denying the subsidy to imported
ethanol could run afoul of WTO rules.

Brazil, which makes ethanol out of sugar, is expected to double its
exports of the fuel from $600 million last year to $1.3 billion in
2010, mostly to fill demand by Japan and Sweden, the Wall Street
Journal reported recently.

Renewable Fuels Association officials were concerned the issue might
come up during last month's WTO negotiations in Hong Kong. When it was
clear the issue wouldn't be on the table, the group decided not to go.


Back in the United States, ethanol is winning new converts in unlikely
places. Or not so unlikely when considering that Iowa's 2008
presidential caucuses are creeping closer.

New York Gov. George Pataki used his state-of-the-state message earlier
this month to call for eliminating state taxes on ethanol and
biodiesel, the fuel made from soybean oil. Pataki also wants to provide
tax-free incentives to companies that will produce renewable energy in
the state.

This is the same New York whose politicians, including Pataki, fought
unsuccessfully to keep from having to use ethanol as an oxygen-boosting
additive in gasoline.

Those politicians included another possible presidential candidate,
Sen. Hillary Clinton, D-N.Y., one of 26 senators who voted against the
2005 energy bill.

She had opposed not only the ethanol mandate but also objected at one
point to providing lawsuit protections to gasoline makers that used
ethanol as an additive. She called the lawsuit shield a "very
treacherous path."

But last month, she joined Senate Minority Leader Harry Reid, D-Nevada,
and other Democrats in proposing an energy plan that calls for
"dramatically" increasing the use of ethanol and other biofuels.

According to the plan, the nation's new 7.5 billion-gallon ethanol
quota - which Clinton opposed - is "small."

New Yorkers may have Iowa on their minds.
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