Debate over Brazil ethanol import tariff heats up

Debate over Brazil's tariff-free ethanol import quota is heating up ahead of a 31 August expiry.

Brazil imposed a 20pc import tariff on ethanol imports in August 2017 in the face of rising imports from the US, with a 600mn liters/year (10,339 b/d) tariff-free quota. Amid pressure from Washington, the tariff-free quota was raised to 750mn l last year.

Brazilian authorities are currently reviewing whether to extend or alter the tariff.

"If the quota is renewed, everyone should have access," Sergio Araujo, president of the fuel importers association Abicom, told Argus, referencing a government decision last year to limit access to the tariff-free quota exclusively to biofuels producers, shutting out importers and distributors that had access to the quota in past years.

Araujo added that ethanol imports are needed no matter what happens to the tariff. "There is a structural production deficit," he said.

In a controversial development last week, the US ambassador to Brazil Todd Chapman met with Brazilian congressman Alceu Moreira, head of the congressional agricultural caucus, to discuss the tariff. According to Moreira's account to local media, Chapman told him that ending the import tariff is "very important" for US president Donald Trump's re-election campaign. A spokesperson for Moreira confirmed the meeting with Chapman but would not comment on the content of the discussion.

Moreira's remarks prompted senior US Democratic lawmakers Eliot Engel and Albio Sires to demand an explanation from Chapman about the allegations that he used his position to seek to benefit Trump's political campaign, which would contravene a US law prohibiting its diplomats from getting involved in US domestic politics. The US embassy in Brasilia denied the allegations, and the State Department in the past year routinely ignored inquiries and subpoena requests from the majority-Democratic House of Representatives.

Sugar deal

Meanwhile, sugar and ethanol producers in northeastern Brazil are demanding that the US expand its tariff-free sugar quota in exchange for maintaining the 750mn l ethanol import quota.

Renato Cunha, head of the sugar, ethanol and bioenergy producers' association Novabio, has argued that Brazil should suspend the tariff-free quota so that negotiations between the two countries can take place in a more organized fashion.

In the first six months of 2020, Brazil imported 821mn l of ethanol, of which 739.5mn l came from the US. Paraguay – the second-largest ethanol supplier – is part of the Mercosur customs agreement, which means it is exempt from the 20pc tariff.