Ethanol Imports and the Caribbean Basin Initiative

Publication Date: March 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Energy; Trade

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Abstract:

Fuel ethanol consumption has grown significantly in the past several years, and it will continue to grow with the establishment of a renewable fuels standard in the Energy Policy Act of 2005 (P.L. 109-58). This standard requires U.S. gasoline to contain a minimum amount of renewable fuel, including ethanol. Most of the U.S. market is supplied by domestic refiners producing ethanol from American corn. However, imports do play a role, albeit small, in the U.S. market. One reason for the relatively small role is a 54-cent-per-gallon tariff on imported ethanol. This tariff offsets an economic incentive of 51 cents per gallon for the use of ethanol in gasoline. However, to promote development and stability in the Caribbean region and Central America, the Caribbean Basin Initiative (CBI) allows the imports of most products, including ethanol, duty-free. While many of these products are produced in CBI countries, ethanol entering the United States under the CBI is generally produced elsewhere and reprocessed in CBI countries for export to the United States. The U.S.Central America Free Trade Agreement (CAFTA) would maintain this duty-free treatment and set specific allocations for imports from Costa Rica and El Salvador. Duty-free treatment of CBI ethanol has raised concerns, especially as the market for ethanol has the potential for dramatic expansion under P.L. 109-58. This report will be updated as events warrant.