US and EU block Brazilian proposal to eliminate ethanol tariffs through World Trade Organization action

The United States and European Union have blocked a Brazilian proposal to include biofuels among “environmental goods” scheduled for tariff reduction or elimination in the next world trade treaty. The US and European position is that the environmental designation rules are for industrial products, not agriculture.

Brazil is expected to ask the World Trade Organization to investigate U.S. ethanol subsidies. If the WTO takes on the case, it will be the first time the organization has ruled on energy subsidies.

The convergence of energy and agriculture in the biofuels industry is expected to pose thorny questions for the WTO if it takes on the case. While neither sector has enjoyed free trade conditions, the subsidy mechanism which has supported national agriculture interests has attracted negative attention far more than the cartel approach employed in the oil industry.

The new Transatlantic Economic Council (TEC), which meets in Washington in November, is expected to propose definitive standards for biofuels trade. Recently, numerous European biodiesel producers have reduced capacity or shut down due to competition from subsidized soybean-based biodiesel from the United States. The European Biodiesel Board points out that biodiesel producers in the US receive a subsidy of up to $300 per ton, and that as a result, US producers can export to Europe for less than the cost that Europeans pay for raw materials.

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