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Possible Brazil-U.S. Ethanol Alliance Irks Corn State Senators

The prospect of a new ethanol partnership between the United States and Brazil has revived long-standing fears of Iowa Sens. Tom Harkin (D) and Chuck Grassley (R) that U.S. farmers could be hurt by a flood of cheaper foreign ethanol.

President Bush is expected to announce an initiative to encourage production and trade of ethanol between the United States and Brazil — the world’s leading producers of the biofuel — when he travels to that country later this week.

Details of the plan are unclear, but Brazilian President Luiz Inacio Lula da Silva said today that Brazil would ask the United States to lower its current 54 cents per gallon tariff on ethanol.

The plan is part of the Bush administration’s push to reduce U.S. dependence on foreign oil by 20 percent over 10 years by focusing on the burgeoning ethanol industry. The Government Accountability Office last week noted that Brazil had completely replaced imports of foreign oil with homegrown ethanol produced with sugar cane.

The alliance also could help reduce the growing influence of Venezuelan President Hugo Chavez, a vocal critic of Bush, U.S. foreign policy and capitalism in general. Chavez, who has threatened to withhold oil exports to the United States, would presumably be hurt if ethanol is used more widely in Latin America and the United States.

However, the plan worries the Senators from Iowa, which produces large quantities of corn feedstock used to make ethanol. An aide to Harkin notes that the Senator — who met with Bush on Friday to discuss renewable energy — has always been concerned about the issue. “We want to make sure this is not done in a manner that is unfair to U.S manufacturers,” the aide said.

In a letter to Bush last week, Grassley — who last year succeeded in extending the ethanol tariff to 2009 — raised concerns about the short-term ramifications of the plan on the U.S. ethanol market.

“I appreciate that increased consumption of ethanol in such countries might eventually benefit the U.S. ethanol industry and U.S. farmers,” Grassley wrote in the March 1 letter. “I fail to understand, however, why the United States would consider spending U.S taxpayer dollars to encourage new ethanol production in other countries that could directly compete with U.S.-produced ethanol.”

Grassley said the arrangement could provide a back-door entry for a flood of Brazilian ethanol through the Caribbean Basin Initiative. The CBI allows the imports of most products, including ethanol, into the United States duty-free.

“Under the CBI, ethanol from Brazil and other countries that is merely dehydrated in a CBI country can enter the United States duty-free up to the amount of 7 percent of the U.S. market,” Grassley wrote. “Through the development of ethanol industries in the Caribbean, Brazil is likely interested in seeing the concomitant development … of increased ethanol dehydration capacity in the CBI countries.”

In his letter, Grassley also warned of replacing “our dependence on foreign oil with a dependence on foreign biofuels.”

Grassley introduced legislation in the 108th Congress to ensure that Brazil could not exploit loopholes in the CBI to export ethanol to the United States. “Allowing the CBI preference program to be used as a vehicle to trans-ship large quantities of Brazilian ethanol to the United States duty-free is simply bad trade policy,” the Senator said at the time. “It’s also bad for my home state of Iowa.”

The bill failed to advance in the 109th but did pick up the support of fellow Iowan Harkin.

The Harkin staffer was unaware of whether the Senator broached the Brazil-ethanol partnership with the president, saying the meeting was “closed-door.”

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