Zero US public support for eliminating Brazilian ethanol tariff, Fed survey finds

According to a survey by The Regional Economist magazine (published by the Federal Reserve Bank of St. Louis), 73% of survey respondents support the elimination of subsidies and tax breaks for oil and ethanol companies, and zero percent of respondents supported the elimination of the Brazilian ethanol tariff.

Tariff background

U.S. Republican presidential candidate Sen. John McCain said that he supports the ending of ethanol subsidies, would back a repeal of the ethanol tariff, and would support the inclusion of Brazil and India into a larger G8 group. McCain was quoted in Estato de Sao Paulo saying that he favors the removal of Russia from the G8.

In Washington, a bill introduced by Senators Dianne Feinstein (D-CA) and Judd Gregg, (R-NH), to reduce the ethanol tariff from 54 cents to 45 cents stalled in committee. The bill, which is now in the Senate Finance Committee, is opposed by both committee chairman Max Baucus (D-MT) and ranking Republican Chuck Grassley (D-IA). Aides said that the Finance Committee, in addition, does not typically fast-track bills proposed by Senators outside of the committee, and there is not enough time on the normal legislative clock to pass major new energy legislation this year.

Meanwhile, meat producers are mounting a full-court press to eliminate the ethanol tariff and ethanol subsidies, to reduce pressure on corn prices that affect chick production costs. The industry, however, is being careful to separate the issue of chicken farming credits and subsidies from other farm subsidies. The industry continues to strongly support poultry farmer and cattle subsidies and supports. Grocers’ associations are coordinating efforts with meat producers.

Last month, Cosan called on the Brazilian government to intervene with the US government more forcefully on ethanol tariff, and observers said that Brazil may take the US to the World Trade Organization over the tariff, now that the US Farm Bill becamke law and extended it.

The WTO has commenced an investigation into US farm subsidies following protests from Canada and Brazil. The Canadians and Brazilians allege that the US has exceeded its $19.1 billion cap on farm subsidies in six of the past eight years, including subsidies for biofuel feedstocks such as corn and soya.

It will be the first time the World Trade 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. 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 issue is a key point of contention imperiling the Doha round of global trade talks. 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.

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