July 22,2004

Grassley Introduces Bill to Freeze Duty-free Imports of Brazilian Ethanol

WASHINGTON – Sen. Chuck Grassley, chairman of the Senate Finance Committee, today introduced legislation to help ensure that the Caribbean Basin Initiative trade preference programis used as a tool of economic development for the region, and not as a vehicle to transship largequantities of Brazilian ethanol duty-free to the United States.

“Allowing the CBI preference program to be used as a vehicle to transship large quantitiesof Brazilian ethanol to the United States duty-free is simply bad trade policy,” Grassley said. “It’salso bad for my home state of Iowa. The current program provides Brazilian ethanol with anunintended competitive advantage in the United States. At the same time, it does little to helpcountries in the Caribbean and Central America.

“The Caribbean Basin Initiative was enacted during the Reagan Administration to encourage meaningful economic development in the Caribbean region, not to facilitate pass-through operations that contribute little in the way of jobs and economic development. By limiting pass-throughprocessing of Brazilian ethanol, this bill will encourage greater investment and economic development in the CBI region. That was what we intended when the program was adopted during the Reagan Administration. This bill will also help to make sure that Iowa’s ethanol industry is notundercut by duty-free Brazilian ethanol imports.”

Grassley’s bill, announced on July 8, limits the amount of ethanol that can enter the UnitedStates duty-free unless it contains significant amounts of domestic content. The legislation is inresponse to recent press reports that U.S. companies were planning major investments in the regionthat would enable them to simply “dehydrate” Brazilian ethanol and gain preferential access to theU.S. market.

Grassley is chairman of the Senate Committee on Finance, which has jurisdiction over tradelegislation.

His statement on the Senate floor upon introduction follows.

Senator Chuck Grassley
Floor Statement on the Introduction of Legislation to Encourage Indigenous
Feedstock for the Caribbean Basin Region with Respect to Ethyl Alcohol for Fuel Use
July 22, 2004

 I rise today to introduce legislation to close a loophole under the Caribbean Basin Initiative(CBI) trade preference program which could allow large quantities of Brazilian ethanol to be shippedto the United States duty-free. This loophole allows companies to use the CBI program as a passthroughto get duty-free treatment for Brazilian ethanol. This could end up displacing U.S.production and hurting Iowa’s ethanol producers. I want to help make sure that does not happen.

Also, when the Caribbean Basin Initiative was enacted during the Reagan Administration,the purpose of the program was to encourage trade and development with the region. I support theCBI program. However, I believe that the program should encourage meaningful economicdevelopment in the region. Unfortunately, one special interest provision in the statute permits “wet”ethanol from Brazil to be shipped to the CBI region and merely dehydrated, thus qualifying for dutyfreeaccess to the U.S. market. The dehydration process which occurs in the CBI region is not verycomplicated. It simply removes a small percentage of water from “wet” ethanol, thereby convertingit into “dry” ethanol. Such “dry” ethanol is provided duty-free access to the U.S. market. I do notbelieve that such simple processing is substantial enough to warrant the benefit of getting duty-freeaccess to the U.S. market. In keeping with the original intent of the CBI, I believe that moremeaningful economic activity should occur in the CBI region before a product qualifies for duty-freetreatment.

My bill would limit the opportunity to exploit this special interest provision. It wouldintroduce a fixed cap on the amount of ethanol that can take advantage of the “pass-through”provision. The amount of the cap is based on the historical volume of ethanol exports from the CBIregion over the past 20 years. Thus, my bill will permit the continued duty-free importation of someethanol that is simply dehydrated in the CBI region, based on historical trade amounts. However,my bill would put a stop to the unlimited future growth of such duty-free imports.

It is my belief that this modification should not impact any of the CBI companies that arecurrently operating ethanol plants in the region. At the same time, my bill will encourage greaterinvestment and development in the CBI region because ethanol that is produced from scratch in theCBI region, using CBI inputs, will continue to be eligible for duty-free access to the U.S. marketunder the CBI program. If ethanol is made from scratch in the CBI region then it will qualify forduty-free treatment.

In sum, my bill only addresses new investments in dehydration plants, whose sole purposeis to merely dehydrate ethanol. Our tariff preference programs should not be granting economicincentives in the form of tariff preferences for such “pass-through” operations. In my mind, that isnot what the CBI program is for, and it is not fair for Iowa’s or the nation’s ethanol producers.