August 5, 2019 / 8:21 PM / 2 months ago

UPDATE 1-Brazil yet to decide on tariff-free quota for ethanol

(Includes information from source following negotiation)

By Marcelo Teixeira and Ana Mano

SAO PAULO, Aug 5 (Reuters) - The Brazilian government has yet to decide whether to renew a tariff-free quota for imports of ethanol virtually all supplied by the United States, Agriculture Minister Tereza Cristina Dias said on Monday, as the end of the quota approaches.

Brazil currently allows for 600 million liters per year of ethanol to enter the country with no tariff, but the provision expires at the end of this month. If it is not renewed, future imports will be subject to a 20% tax.

Any liberalization of the ethanol trade between Brazil and the United States would need to be “gradual” so as not to harm the local industry, Dias told reporters during a press conference on Monday, during Brazil’s 2019 Agribusiness Congress.

She said the government was still evaluating the issue. U.S. ethanol producers have asked Brazil to, at least, renew the quota, since complete elimination of the tariff, which is what they would like to see, is not on the cards.

A large Brazilian ethanol trader who is closely following the talks between the two governments told Reuters that it was unlikely that the quota would be renewed.

The source, who asked not to be named because the issue is sensitive, said Brazil’s cane industry group Unica has managed to convince the government to not open up that the ethanol trade while the United States fully taxes Brazilian sugar imports.

“They want an equivalent tariff-free quota for sugar in exchange for the tariff-free quota for ethanol,” he said, adding that while that does not happen the most probable scenario is that Brazil will let the ethanol quota expire.

The trader also said that it makes more sense now that the ethanol issue be included in the broader trade talks expected to happen between the two countries.

The presidents of Brazil and the United States have said they will negotiate a free trade agreement.

“It would make no sense to treat ethanol separately now,” the source said.

The United States regularly sells ethanol to Brazil’s Northeast region, where local production is not enough to supply total demand.

Without the quota, the trader thinks Brazilian center-south mills will gain competitiveness in that region against U.S. corn-based ethanol. (Reporting by Marcelo Teixeira and Ana Mano; Editing by David Gregorio)

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