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March 09, 2007

MORE ON BUSH'S BRAZILIAN BIOFUEL PACT: Plus, I think I approve of this loophole:

A tortured route around the tariff goes through the Caribbean Basin. There, two dozen small countries are exempted as part of a 24-year-old trade agreement from near the end of the Cold War, designed to combat communism by feeding the U.S. dollar into their poor economies. Even that tariff exception -- which requires entrepreneurs like Mr. White to jump through legal hoops while risking losses from volatility of supply and demand in Brazil and the U.S. -- is under attack. . . .

The Caribbean sugar industry is so antiquated that it can't produce the fuel competitively from its own cane fields. Instead, Caribbean companies take on a middle step in the production process: They dehydrate the ethanol from its original state, then ship it to U.S. refiners, which add gasoline to make the fuel useable in American cars.

The dehydrating meets the U.S. requirement that products be "substantially transformed" in Caribbean Basin countries, if they don't originate there, to escape tariffs. Such techniques to satisfy trade rules often are controversial: In the 1980s and 1990s, Caribbean Basin countries ran afoul of U.S. apparel makers when they started finishing low-cost apparel from Asia and sending it on to the U.S., skirting trade barriers aimed at the Asian products.

U.S. farm-state lawmakers like Sen. Grassley say that merely siphoning water from ethanol shouldn't qualify Caribbean firms for tariff breaks. "It's subterfuge," he says.

We should get rid of the tariff, which -- as Grassley's state-of-the-union behavior illustrates -- is just a subsidy to domestic political interests. More thoughts on that here:

If Mr Bush were serious about ethanol, he'd let Brazil's in more cheaply, preferably tariff-free. This would boost both Brazilian farmers and America's ethanol infrastructure. Once all that expensive stuff starts to appear—pumping stations, distribution networks—American cellulosic ethanol (from switchgrass and whatnot) is a lot more likely to come onto the market and be competitive. Everyone wins but OPEC.

And Grassley's corngrowing constituents.

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