Tariff-free ethanol imports should focus on northeastern off-season

Change in how volume – allocated through quota – will be distributed throughout the year was approved at Camex meeting

New rules for tariff-free ethanol imports are due to be released shortly by the Executive Committee of the Foreign Trade Chamber (Camex). At a meeting held on Monday (14), the committee approved the agreement that redistributes the volume of biofuel entering the country.

The goal is for a significant portion of the quota – 550 million liters – to be concentrated between March and August, the off-season of the Northeast plants. According to a report published by Valor Econômico, 275 million liters will have to be disposed of from March 1 to May 31, 2020, while the other 275 million liters will be reserved for the period from June 1 to August 30, 2020.

Thus, the sugarcane harvesting period in the region – from September to February – should receive 200 million liters of tariff-free imported ethanol. Volumes exceeding the quota can still enter the country, but will be taxed at 20%.

At first, the annual quota would be divided equally between the four quarters of the year, so that the six months of sugarcane harvest and off-season would receive 375 million liters. Historically, the volume is almost entirely biofuel from the United States.

According to the Valor Econômico report, a resolution with the new rules should be published soon in the Federal Official Gazette.

Quota increase generated disagreements

Contrary to the expectations of many sugarcane plants in September this year, instead of ending the quota for importing ethanol without tariffs, the measure was renewed for another year. In addition, the volume has been increased from 600 million liters annually to 750 million liters.

While organizations like the Sugarcane Industry Union (Unica) celebrated the move – resulting from a long negotiation with the United States – businessmen and lawmakers from the Northeast region expressed displeasure. According to them, the quota benefits the entry of biofuel in the northeastern market, which increases supply and harms local mills.

Because of this, the congress received a draft decree that could sustain the quota, which even had an urgent regime request approved in plenary . The government then mobilized to prevent voting and approve measures that could minimize the impact of the volume of ethanol that reaches the Northeastern posts.

The government’s argument is that the increase in quota may benefit Brazil, with impacts on the meat and sugar sectors, as well as influencing a free trade agreement with the United States. “It is a rate that is totally consistent with what the Brazilian market can compete with,” said Deputy Eduardo Bolsonaro in a video. “There is no fuss whatsoever to say, or to say that companies will fail due to this quota of American ethanol that enters with 0% tariff here in Brazil.”

The very existence of the quota, by the way, is criticized by the United States . Until August 2017, the entry of ethanol without charging tariffs in Brazil was released. The measure was part of an effort to create an international biofuels market.

That year, however, Brazil experienced record imports . The impact of ethanol from the US on the northeastern market led producers in the region to demand the creation of a tariff and even the removal of ethanol from the exception list, which would raise the taxation of any volume to 20%.

At the time, as a way of partially meeting this demand, a quota of 600 million liters was created annually , valid from September 2017 to August 2019. At first, it was expected that, after this period, the quota would be reduced or even extinct – but a stalemate already existed, as there were fears that the measure would lead to a trade war with the United States.