Are European Producers Overreacting?

By Robert Vierhout | December 12, 2011

For many, it may have come as a surprise that the European ethanol industry asked the European authorities to take action against U.S. ethanol imports. Unfortunately, the European producers had no other option but to act for a number of reasons.

U.S. import increases were hitting triple digits last year and still growing this year. In spite of higher mandates/targets in the EU, the market share of EU producers has not been increasing  as it should have been expected. The very low prices quoted for U.S. ethanol are driving down the prices on the EU market. For European producers, this situation has undermined profitability and, for some, closure of installations.

Using the trade tools in the European law against unfair imports is the strongest and, hopefully, the most effective measure the industry can deploy. After a 45-day examination of the evidence submitted by the European ethanol industry, the European Commission decided a formal investigation is justified to determine whether U.S. subsidies are causing  injury to the EU ethanol industry. A second investigation will look into whether ethanol was dumped on the EU market. Member states expressed the opinion that investigations are indeed legitimate.

I could well understand that many American producers believe the Europeans are overreacting. And why an investigation now, when the Volumetric Ethanol Excise Tax Credit is about to become history?

The decision to complain and ask for an investigation was not an easy one. Besides the additional burden of high legal fees, the investigation will put pressure on the European/American ethanol industry relationship. After all, if countervailing duties were put in place, U.S. ethanol producers would not be exporting to the EU for at least five years.  And if the EU authorities find our request for retroactive application of countervailing duties justified, EU customs would claim these for the European coffers.

Whether VEETC will still be there next year, in whatever shape or form, is irrelevant. The investigation will focus on the time frame covering the last quarter of 2010 and the first three quarters of 2011 when subsidies were undeniably present.

Whether U.S. producers intentionally pursue ethanol exports, or whether these exports are the result of a clever scheme of clever traders, exporters or importers, is irrelevant too. For the European ethanol industry there is only one thing that counts—were the imports done fairly or not? We believe it is not fair when there is as much subsidy involved as in the U.S. case.

It would be regrettable, however, if this trade dispute undermined the constructive relationship producers have built over years between the U.S., Canada and Europe to create an ethanol voice at global level. Within the Global Renewable Fuels Alliance, we are working on a common political agenda to send signals to the international community and our respective politicians and regulators that the use of biofuels should be promoted. That agenda is still there, trade dispute or not.

Discussing trade issues at the global level has always been sensitive. It was the main reason that the Brazilian ethanol producers did not want to join the Global RFA. Maybe it is time for them to rethink their position. The Brazilian ethanol industry did not fight U.S. imports because less ethanol on the Brazilian market would mean more gasoline on the market and higher ethanol prices. What is happening in Brazil underlines what the agenda of the global ethanol industry should be—growing ethanol’s market share as a transport fuel with trading occurring whenever a region is short on ethanol supplies.

As the Renewable Fuels Association’s Bob Dinneen once said, “We are not here to cannibalize each other’s markets.”  Are we?

Author: Robert Vierhout
Secretary-general, ePURE
Vierhout@epure.org