ANNOUNCED AS TEMPORARYNo
Representatives Earl Pomeroy (Democrat-North Dakota) and John Shimkus (Republican-Illinois), together with 28 other co-sponsors, introduced on March 25, 2010 a bill (designated H.R.4940) that would extend for five additional years the existing subsidies and protection for U.S. ethanol. The bill would extend three measures the Volumetric Ethanol Excise Tax Credit, the Small Ethanol Producers Tax Credit, and a special tariff on imported ethanol for five years. It would also extend the Cellulosic Ethanol Production Tax Credit for three years. These measures promote the U.S. ethanol industry both through subsides and import protection.
The 111th Congress (2009-2010) did not act on the bill before adjourning on Septermber 29, 2010. The matter was not revisited thereafter.
The one item with the most direct impact on trade is the 54˘ per gallon tariff'1' on imported ethanol. That tariff has a very controversial history, having originally been imposed in order to promote an infant industry. Following the second oil shock in the late 1970s and early 1980s the United States offered subsidies to the production and sale of ethanol. Even though foreign producers did not benefit from the U.S. production subsidies, the tax exemptions and other incentives nonetheless offered them a strong incentive to ship to the United States. Congress responded in 1980 by slapping on a 'secondary' import tariff of 54˘ per gallon as a 'temporary' measure that has been repeatedly renewed ever since then. That tariff appears to have been a clear violation of U.S. obligations in the GATT, as the tariff greatly exceeded the bound rate. The United States nevertheless managed to impose the tariff with impunity and succeeded in the Uruguay Round of GATT negotiations (1986-1994) to get it 'legalized' in the U.S. tariff commitments.'2'
The latest extension of the tariff came in the 'Food, Conservation, and Energy Act of 2008,' more commonly known as the 2008 Farm Bill. Section 15333 of that law extended the 'sunset' date for that tariff from January 1, 2009 to January 1, 2011. The new bill would extent it until January 1, 2016.
Based on the value of average imports in 2009, the tariff had an ad valorem equivalent rate of about 29%. The only significant U.S. imports of ethanol come from Canada (which has duty-free access under the North American Free Trade Agreement) and Trinidad and Tobago (which enjoys limited duty-free access under the Caribbean Basin Initiative). It is generally anticipated that the United States would import large quantities of ethanol from Brazil if this tariff were not in place. The bill was immediately criticized by the Brazilian Sugarcane Industry Association (UNICA), which said in a press release that, 'It is ironic that Congress allows oil from nations hostile to America into the country tariff-free, but is more than willing to punish clean energy from Brazil, a long-standing democratic ally.'
The sponsors of the bill are well-positioned to advance the measure. Pomeroy serves on the Ways and Means Committee (i.e., the tax and trade committee of the House of Representatives), and Shimkus serves on the Energy and Commerce Committee.
'1' The tariff is actually denominated in metric units (14.27˘ per liter), but in the United States where the tariff schedule is one of the few items for which the metric system is used it is typically described in English units.
'2' That tariff is now included in the U.S. bindings of 'other tariffs and charges' (a supplementary section of the tariff bindings reached in the Uruguay Round).
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