Proposed EU Trade Action Against US Ethanol

The European Commission (EC) has been moving forward with a proposed action that is likely to pit the interests of European ethanol producers against those of U.S. producers. The EC action, which might lead to changes of European Union (EU) policy to be implemented in all 27 EU member states, were triggered by requests made in October 2011 by ePURE, the trade association for European ethanol producers.

On October 12, 2011, ePURE requested that the EC investigate alleged unfair U.S. trade practices and their potential impact on the ethanol industry in the EU. In its press release announcing this action, ePURE stated that the U.S. had encouraged ethanol production “for the last twenty years, notably through the provision of generous subsidies benefitting ethanol producers directly or indirectly through the obligation to blend ethanol with gasoline”. In its release, ePURE specifically cited the federal excise tax credit and the federal income tax credit that were at that time available to ethanol producers. ePURE’s main concern was over the Volumetric Ethanol Excise Tax Credit (VEETC), which provided a benefit of 45 cents per gallon for gasoline blended with ethanol, which the blender could take either as a credit from the federal excise tax for gasoline or as a credit against federal income tax. In its complaint to the EC, ePURE alleged that U.S government subsidies and promotional programs had led to the saturation of the U.S. ethanol market, causing many U.S. ethanol producers to look to European and other international markets, and that the subsidies also allowed these producers to adopt “aggressive pricing practices” for ethanol in the European market.

ePURE’s request to the EC triggered two different inquiries, which have often been confused in press reports of this issue. One inquiry was to investigate the impact of U.S. ethanol subsidies on the European ethanol market and on European ethanol producers (the “anti-subsidy” investigation),  and the second was to look into charges that American producers were “dumping” their product in Europe at a low cost to harm European producers (the “anti-dumping” investigation). Both of these inquiries began in November 2011 and have proceeded towards resolution in the last several months of 2012 and early in 2013.

The anti-subsidy inquiry was the first to reach some resolution. On August 23, 2012, the EC announced that, although it had found evidence of “countervailing subsidization and material injury” caused to the European ethanol industry, it declined to institute countervailing duties on U.S. ethanol because the main subsidy scheme leading to such alleged injury, the VEETC credit, had expired (with the consent of the U.S. ethanol industry, Congress had allowed VEETC to expire at the end of 2011, and so was no longer in effect at the time of the EC’s investigation). However, because the EC felt there was “evidence that the United States might reinstate the main subsidy scheme … in the coming months with retroactive effects,” it decided to require that imports of U.S. ethanol into the EU be registered, so that the EU could later impose retroactive duties if the U.S. subsidy were reinstated. A press release from ePURE announcing the EC decision expressed the hope that such “strict monitoring” of U.S imports might discourage the U.S. government from reinstating the VEETC credits, although from my perspective, by August 2012 there was little or no interest within the U.S. government or industry to reinstate the credit. On December 20, 2012, The EC finalized its decision not to impose countervailing duties on U.S. ethanol in the “anti-subsidy” investigation, and also decided to stop requiring registration of U.S. ethanol importers. The formal EC notice can be found here.

The “anti-dumping” investigation was continuing, and also began to reach resolution in December. The European Commission announced on December 6, 2012 that, as a result of its yearlong investigation, it would propose that the EU impose what was originally reported as a 9.6% anti-dumping duty on U.S.-produced ethanol, for a five year period. Then, it was reported that a majority of EU member states voted on December 20 to impose this duty as the European Commission had proposed, subject to final approval from the Commission and the Council of the European Union (EU Council). The EC formally published its proposal on January 22, 2013, indicating that it would impose a 9.5% duty on all U.S. bioethanol imports, which would lead to a fixed charge of 62.30 euros per net tonne of bioethanol present in fuel, based on the expected blending ration of 10% ethanol in gasoline. The duty is proposed for a five-year period, which appears to be the “default” term of anti-dumping remedies imposed by the EU under its basic anti-dumping regulation. In a potentially confusing move, it appears that, under the anti-dumping proposal, the EC is once again proposing to institute registration of U.S. ethanol imports, even though such registration was halted in the termination of the anti-subsidy investigation as mentioned above.

From a legal perspective, the anti-dumping proposal needs to be approved by the EU Council, which the EC has proposed should take place by February 22, 2013. The voting rules of the EU Council are a bit confusing, but it appears that a majority vote of EU members states is required to adopt this proposal.

The U.S. Trade Representative’s office has objected to the proposed duty, which has also drawn criticism from U.S. ethanol trade groups, who characterized the proposal as unprecedented and legally vulnerable. In criticizing the proposal, the Renewable Fuel Association pointed out that the EC “selected six producers for investigation and none were found to be dumping; nonetheless, duties are being imposed.” Naturally, ePURE in Europe, which had initiated these EU inquiries, applauded the decision.

Although perhaps inevitable that a transatlantic rift would open up on international trade issues, it is somewhat distressing to see the industry divided in this way, particularly when U.S. and European biofuel trade associations share common positions on so many other issues, particularly those related to the “food vs. fuel” debate. It is also somewhat ironic that the EU might impose a tariff on U.S. ethanol so soon after the U.S. allowed its tariff on Brazilian ethanol to expire on December 31, 2011. Lifting the Brazilian tariff has led to a substantial increase in ethanol imports to the U.S. in 2012 (although several other economic and agronomic factors likely contributed to this trend), which in the short term has been beneficial in facilitating compliance with the U.S. Renewable Fuel Standard, particularly since sugarcane ethanol is treated more favorably than corn ethanol under the RFS. It certainly seems that imported ethanol, particularly cellulosic or other non-food-derived ethanol, once it becomes available, would be useful in ensuring EU-wide compliance with the EU Renewable Energy Directive (RED). This would be particularly true if the recently-proposed revision to the RED takes effect, with its preference towards biofuels not derived from food crops. On the other hand, the European transport sector uses more diesel than gasoline (petrol), meaning that renewable ethanol will play a smaller role in meeting the requirements of the RED than will renewable diesel replacement fuels. It remains to be seen what impact the proposed EU duty will have on the European ethanol market, if the duty is ultimately imposed, and whether it serves its purpose of preventing U.S. producers from exporting ethanol to Europe.

D. Glass Associates, Inc. is a consulting company specializing in government and regulatory support for renewable fuels and industrial biotechnology. David Glass, Ph.D. is a veteran of over thirty years in the biotechnology industry, with expertise in industrial biotechnology regulatory affairs, U.S. and international renewable fuels regulation, patents, technology licensing, and market and technology assessments. Dr. Glass also serves as director of regulatory affairs for Joule Unlimited Technologies, Inc. More information on D. Glass Associates’ government and regulatory consulting capabilities, and copies of some of Dr. Glass’s prior presentations on biofuels and biotechnology regulation, are available at www.slideshare.net/djglass99 and at www.dglassassociates.com. The views expressed in this blog are those of Dr. Glass and D. Glass Associates and do not represent the views of Joule Unlimited Technologies, Inc. or any other organization with which Dr. Glass is affiliated. Please visit our other blog, Advanced Biotechnology for Biofuels

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