Under the Microscope

EU joins China in investigating U.S. ethanol trade practices
By Holly Jessen | December 12, 2011

With the U.S. market for ethanol essentially capped at 10 percent, ethanol producers have been exporting both ethanol and distillers grains in increasing numbers the past few years. Whether that’s a positive or a negative depends on who is asked.

At the end of November, the EU joined China in launching investigations into the matter. As requested by ePURE, the European Producers Union of Renewable Ethanol, the European Commission launched anti-dumping and anti-subsidy investigations. China announced an anti-dumping investigation into U.S. dried distillers grains with soluables (DDGS) at the end of 2010, the results of which are as yet unknown.

The deadline to wrap up the anti-dumping investigation is 15 months and 13 months for the anti-subsidy investigation, says Rob Vierhout, secretary general of ePURE. After nine months, the EU can impose provisional measures, such as raising tariffs. “Tariffs will only be raised if the European Commission finds enough evidence for it,” he tells EPM. “That is why a nine-month period of investigation is needed. You may understand that the European Commission wants to check what the EU producers are saying.”

The European Producers Union of Renewable Ethanol said Nov. 2 that it was confident the investigation will “clearly establish the need to impose dissuasive duties on U.S. imports of fuel ethanol” and also requested that U.S. imports be registered so duties could be imposed retroactively. Essentially, the European ethanol industry is asking for additional import duties to “undo the effect of the competitive advantage” enjoyed by a subsidized U.S. ethanol industry. “Massive and sudden imports of U.S. ethanol, combined with unfairly low prices over the past few years, have seriously damaged the economic situation of European producers,” Vierhout says. “The unfair competition of U.S. imports is simply depriving the EU industry from the benefit of this positive evolution on its own domestic market,” he says, adding that it’s critical to resolve the situation as EU counties are rapidly increasing consumption of renewable fuels, resulting in a potentially bright future for EU producers.

Although there are other factors, the main concern is that U.S. ethanol is benefiting from the U.S. Volumetric Ethanol Excise Tax Credit, or the 45-cents-per-gallon blenders credit, and then entering the EU. VEETC is widely expected to expire at the end of 2011.

The Renewable Fuels Association says it would work with other industry groups to encourage domestic ethanol producers to cooperate with the investigations.  The group also says it will work to make sure the industry isn’t penalized unjustly. “Importantly, domestic ethanol producers are not eligible for VEETC,” the RFA says. “That tax incentive is specifically made available to gasoline blenders, marketers, and other end users. Therefore, we believe that U.S ethanol producers should not be the focus of any potential European action.  Moreover, VEETC will expire at the end of 2011, rendering the VEETC portion of this investigation and complaint irrelevant moving forward.”

RFA has said repeatedly it does not believe that U.S. ethanol is being blended in the U.S., taking advantage of the 45 cent per gallon incentive known as VEETC. “Based upon our research and work with the International Trade Commission, the RFA has neither discovered nor been provided any evidence by the EU or any other entity that such ethanol trades are occurring,” RFA says.

U.S. ethanol is being exported in increasing numbers because it is the lowest cost ethanol on the market currently, the RFA counters. “To be clear, all ethanol producing nations and regions provide incentives,” RFA says. “Nations of the European Union are no different.”—Holly Jessen