Brazilian lawmaker opens inquiry into controversial import tax break extension
By Nathália Urban
Last week, Brazilian Congressman Ivan Valente (PSOL-SP) revealed a telegram between US Congressional Foreign Affairs Committee Chairman Eliot Engel and Todd Chapman, US ambassador to Brazil regarding the extension of a controversial ethanol policy to boost President Donald Trump’s electoral chances. In it, Engel asks for clarification of a request made by Chapman for the Brazilian government to increase ethanol imports from Iowa, with the express purpose of strengthening Trump’s electoral base there.
Historically. Iowa is a swing state. Even though Trump won there in 2016, it is currently up for grabs. The United States and Brazilian governments are now analyzing the possibility of reducing import tariffs on American ethanol to zero. Currently, there is an exemption for up to 750 million liters per year, but thereafter the tariff is 20%.
According to Valente, who launched an inquiry to the Brazilian Foreign Ministry on the matter, attempts were made to extend the exemption, which was slated to expire in August of this year. The Brazilian sugar and alcohol sector fought this move, but Valente discovered that the Bolsonaro administration recently extended it until after the US presidential elections.
In 2020, it will be 10 years since Brazil eased tariff barriers for the entry of ethanol from the USA in exchange for US reduction of import tariffs on commodities such as sugar. 7 years ago the 20% import tariff on ethanol was exempted for the first 600 million liters. Three years ago this exemption was raised to 750 million liters. During this entire period, however, the US never significantly reduced import tariffs on Brazilian sugar.
Brazil’s powerful ethanol industry rejects the renewal of any exemption quota due to this lack of reciprocity. Industry spokespeople warn that flexibilization has flooded the domestic market with subsidized ethanol from the USA causing unequal competition with local producers and harming the entire Brazilian sugar/energy sector, which is made up of 360 plants and distilleries and generates 750,000 direct and 1.5 million indirect jobs. To date, Bolsonaro has preferred to ignore his former allies in the powerful ruralista lobby in order to please the US. His recent move to extend the policy until after the US Presidential elections seems timed to help Trump in the US Midwest.
As Ivan Valente said, there seem to be ulterior motives in the timing. “Suddenly we learned that there was a meeting with five, six ministers, including Economy, Agriculture, Mines and Energy, Environment and obviously the Brazilian Foreign Affairs Minister, who is a doormat to the United States.”
The corn lobby
The USA produces ethanol from corn, which is both less environmentally efficient and cheaper than Brazilian ethanol, which is made from sugar cane. US corporations like Archer Daniels Midland are the biggest sellers of corn ethanol to Brazil. According to government data compiled by Unica (Sugarcane Industry Union), 142.5 million liters were imported in April, 2020, of which 127.6 million came from USA.
During a recent interview on the Brazilian news portal 247, Valente said, “Brazilians were promised something in exchange for opening their markets to corn ethanol produced in US agricultural states, but they got nothing. This is harming Brazilian agribusiness in the midst of the pandemic . Now [USA] made another request it was delivered by Bolsonaro”.
The US Federal Government has provided lucrative subsidies to the corn ethanol industry for decades. Corn ethanol lobbyists have secured favorable treatment under the tax code, tariff protection from foreign competition, and even a government mandate for its use. Originally sold as a way to achieve energy independence and reduce greenhouse gas emissions, corn ethanol has failed to deliver on all fronts and instead has caused numerous harmful consequences for the environment and consumers.
The Trump administration provides waivers and less stringent requirements for refineries to produce bio-fuels under the Renewable Fuel Standard. But a lapse in a key tax credit in 2018, combined with changes to the RFS, led to a series of ethanol plant shutdowns, which has been angrily protested by members of the Congress from the Midwest. This in turn, has caused a drop in demand for corn in the United States leading to overproduction. The strategy of pushing corn based ethanol on the foreign market, therefore, would help Trump recuperate electoral support in key Midwestern states such as Iowa.
Congressman Ivan Valente is demanding clarification from the Ministries of Foreign Affairs and Agriculture. Last week, he made an official request for “the documents and minutes of meetings in which this absurdity was discussed”.