Brazilian government works to re-classify ethanol as a global fuel commodity

The development of an export-oriented biofuels and bioenergy industry in the Global South offers a chance to lift millions of people out of poverty and to achieve social and economic development in the poorest countries. A precondition for this to succeed, is that importing countries (US/EU/Japan) lower their unfair trade barriers and subsidies.

Earlier we reported that competitive ethanol made in the developing world is facing all kinds of trade barriers and has to compete with biofuels made in the North that can only surive because of massive subsidies and protectionist measures. Corn-based ethanol or soy-based biodiesel made in the US -- uncompetitive biofuels with a very low energy balance and with virtually no potential to reduce GHG emissions -- would never survive without the hundreds of subsidies they receive today. A recent report by the Global Subsidies Initiative showed that these subsidies for uncompetitive biofuels ('lobby-fuels') cost US taxpayers billions each year (earlier post).

When it comes to unfair trade barriers, the US imposes a lofty 54-cent-per-gallon duty on direct ethanol imports, as well as a 2.5% ad valorum tariff. The EU, expected to be Brazil's top purchaser of ethanol next year, imposes a tariff of €10.2 per every 100 liters for denatured alcohol, and a tariff of €19.2 per 100 liters for undenatured alcohol.

Nobel-prize winning economist Joseph Stiglitz uses precisely this example to show how the West is failing to make a credible case when it comes to building a more fair and balanced world trade regime; the West is blocking a commodity that can bring economic prosperity to millions in the South, Stiglitz argues (earlier post). So biofuels are a crux when it comes to the creation of a new global trade arena. Some people have even gone so far as to suggest that negotiations on the role of biofuels in international trade might be the key to revive the deadlocked WTO Doha Development Round (earlier post). Finally, the chief of the International Energy Agency, Claude Mandil, likewise thinks that the EU and the US must get serious and import biofuels from the South, where their production actually makes sense (earlier post).

Currently, there is a lot of debate on how biofuels should be classified in the future and on what kind of products they really are under the current global trade rules. Are the green fuels and their feedstocks agricultural, industrial or environmental goods? Or a combination of both that warrants a new form of classification? And what kind of mechanisms and negotiation strategies are there to limit importers to impose protectionist measures? A report by the International Food & Agricultural Trade Policy Council (IPC) on international biofuels trade issues -- WTO Disciplines and Biofuels: Opportunities and Constraints in the Creation of a Global Marketplace [*pdf] -- addresses precisely these questions and offers some pointers as to the effects of different forms of classification (earlier post).

Now the Brazilian government itself is getting involved in the debate. Hoping to lower global trade barriers on ethanol, it has set its sights on re-classifying the renewable fuel in the international trade arena as a fuel commodity rather than an agricultural commodity, a spokesman at Brazil's Foreign Ministry confirms:
ethanol :: biodiesel :: biofuels :: energy :: sustainability :: trade :: subsidies :: trade barriers :: Doha :: WTO :: Brazil ::


"There have been a series of consultations and discussions in the government about this, and it's in our internal plan," said the spokesman in a phone interview with Dow Jones Newswires. "But it's premature to talk about a schedule for when this might happen." The country's Agricultural, Mines & Energy, Chief of Staff, and Trade ministries are also involved in this discussion, he added.

Brazil - the world's top ethanol exporter as well as its lowest-cost producer - would benefit immensely from lowered trade tariffs on the biofuel. However, the country's ethanol is subject to high import duties in several key trading partners, due in part to a formidable system of tariffs already imposed on agricultural products.

If ethanol were considered an energy commodity, then it could receive the same treatment as petroleum, said Celso Amorim, the country's Foreign Trade Minister last month.

"No one, if it's not for fiscal reasons, and this occurs in few cases, places a tariff on petroleum imports, because that would penalize the whole productive process of the country," he added.

The office of Brazil's Chief of Staff is also a supporter of re-classifying ethanol under the fuel category, according to a report in local business daily Gazeta Mercantil published Monday.

The U.S., the top buyer of Brazilian ethanol this year, imposes a lofty 54-cent-per-gallon duty on direct ethanol imports, as well as a 2.5% ad valorum tariff.

The E.U., expected to be Brazil's top purchaser of ethanol next year, imposes a tariff of 10.2 euros per every 100 liters for denatured alcohol, and a tariff of EUR19.2 per 100 liters for undenatured alcohol. Both types of alcohol can be used for biofuel production.

In the first half of this year, a new bureau of energy was created within the Foreign Ministry to direct Brazil's energy strategies in both the bilateral and multilateral arenas, added the Foreign Ministry spokesman.

Brazil is the world's leading sugar producer and exporter. It is also the world's No. 2 ethanol producer after the U.S.