The U.S. Trade Representative's chief agriculture negotiator, Doug McKalip, is preparing to head to Brazil as the Biden administration tries to get the South American nation to end its tariff on U.S. ethanol.
USTR Katherine Tai told the Senate Finance Committee last week she put McKalip in charge of working with Brazil on the issue and that she confronted the administration of newly elected Brazilian President Luiz Inácio Lula da Silva about the country’s ethanol tariff when she was in the capital city of Brasilia earlier this month.
“Tai went there first to open the door — establishing new relationships with this new (Lula) administration, but McKalip’s coming in (for a) market access mission,” Mackenzie Boubin, director of global ethanol exports for the U.S. Grains Council, told Agri-Pulse.
“He’s going down next week. We’ve been collaborating with his team. We’ve been giving him our talking points associated with this, and I think he’s actually a very good advocate for us. … He knows ethanol.”
A Biden administration official confirmed the trip to Agri-Pulse, but not the details of McKalip's schedule or agenda.
The Trump administration made a last-ditch effort to keep Brazil from reimposing tariffs on U.S. ethanol in 2020, but demands from Brazilian negotiators were just too high and the talks ended with the South American country slapping a steep 20% tax on the U.S. fuel.
Now the Biden administration is signaling it's ready to jump back into the messy fight.
More than five years ago, Brazil imposed a tariff rate quota on U.S. ethanol that allowed the first 198 million gallons to enter the Brazilian market tariff-free. U.S. exports far exceeded the quota in some years even though it triggered a 20% duty.
U.S. ethanol exports to Brazil jumped from about 277 million gallons in 2016 to 428 million gallons in 2017 and then 500 million gallons in 2018, according to data from the U.S. Energy Information Administration.
But Brazil let its TRQ expire on Aug. 31, 2020, amid tense talks between the two countries. The U.S. wanted Brazil to reinstate the TRQ, but Brazil was demanding in return a large expansion of the U.S. quota for imports of Brazilian sugar.
Every year, by statute, USDA announces the minimum amount of raw sugar the U.S. can import — about 1.1 million tons — and USTR then publishes a list of countries that can export that sugar and how much of the quota they get.
Brazil briefly reinstated the ethanol TRQ during negotiations but ended up letting it expire again just three months later.
The return of the 20% tariff on U.S. ethanol cut U.S. ethanol exports to Brazil to just a small fraction of what they once were, said Renewable Fuels Association Chief Economist Scott Richman.
“That really adversely affected U.S. shipments from then onward,” he said.
U.S. ethanol exports to Brazil dropped to just 71 million gallons in 2021 and then 59 million gallons in 2022, according to the U.S. Energy Information Administration.
But the U.S. Grains Council was working privately to try to fix the situation and began meeting with the Brazilian Association of Fuel Importers, known as ABICOM in Brazil. Together, the groups worked to show the Brazilian Foreign Trade Chamber (CAMEX), that ending the 20% tariff on U.S. ethanol would help Brazil combat inflation by lowering gasoline prices for consumers.
Brazil’s Ministry of Economy was eventually swayed and did its own analysis that showed gasoline prices would drop by the equivalent of 16 cents per gallon, according to a report released last summer by the U.S. Grains Council.
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That’s why Brazil temporarily suspended its 20% tariff on March 23 last year. Hopes were high that the tariff suspension would spur U.S. exports and it did, but not for long. The U.S. shipped 30 million gallons of ethanol to Brazil in April and 8 million in May, but virtually nothing after that, said Richman.
The U.S. really only exports ethanol to Brazil from November through May, when Brazil’s domestic production is at its lowest.
The U.S. Grains Council, Renewable Fuels Association and Growth Energy had planned a trade mission to Brazil for this week, but that got canceled after Lula scheduled a last-minute visit to China. Lula did not go to China because he got sick, but the U.S. groups still had to call off the trip.
Boubin said they are now rescheduling the trip and it could happen as early as May.
Still, Richman warned there could be a lengthy fight over the tariff.
“While we would like to have this resolved very quickly, the most important thing is that it get resolved,” Richman said. “It may take longer than we’d like.”
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