Trade barriers for biofuels

Tariff barriers
At present there is no specific customs classification for biofuels. Bioethanol is traded under the code 22 07 which covers both denaturated (HS 22 07 20) and undenaturated alcohol (HS 22 07 10). Both types of alcohol can be used for biofuel production. Biodiesel in the form of FAME (fatty acid methyl ester) is classified under the HS code 3824 9099. However, in neither of these cases is it possible to establish whether or not imported alcohol or FAME are used for biofuel production.

Despite this lack of specific customs classification, there is already evidence demonstrating that the use of tariffs is common practice in countries keen to protect their domestic agricultural and biofuel industries from external competition. According to IEA (2004), bioethanol import duties are US$ 0.10/lt in the EU, US$ 0.14/lt in the US, US$ 0.06/lt in Canada, US$ 0.23/lt in Australia and zero in Japan and New Zealand. In addition the US also applies an extra US$ 54 cents/gallon, an amount that equates to Brazil’s production costs. In Brazil, imports of bioethanol are taxed at 30 per cent. For biodiesel classified under HS code 3824 9099, on the other hand, the US applies duty of 6.5 per cent while the EU applies a 5.1 per cent tariff on biodiesel from the US. Furthermore, import tariffs on biofuel input materials, including feedstocks but particularly on other more value added materials such as oils and molasses are also substantial (see section 5.1.1.2 on Tariff Escalation). However, tariffs applied to different countries may vary as both the EU and the US have signed preferential trade agreements and have a Generalised System of Preferences that grant preferential market access conditions for certain countries and products.

Tariff escalation

The use of tariff escalation that favours production of crops over other more value added forms of biofuels is also common practice. In the case of soya, for instance, the EU, the US, Canada and Japan impose no tariffs on soyabean imports. However, the EU applies a tariff of 8.8 per cent and the US applies a 19.1 per cent duty on soya oil imports (both of which should be gradually reduced to 6.4 per cent to comply with WTO agreements). The US applies a 6.4 per cent tariff on rapeseed and Canada applies an 11 per cent duty. Canada also applies a 9.5 per cent tariff on sunflower seed oil80 and a tariff of 11 per cent on palm oil. The EU applies a 3.8 per cent tariff on imports of crude palm and 9.0 per cent and 10.9 per cent on imports of refined palm oil and stearin respectively, from Indonesia and Malaysia.

In the case of bioethanol, it is alleged that as a result of pressure from domestic producers, the EU has recently removed Pakistan – the second largest bioethanol exporter to the EU – from the General System of Preferences (GSP). This implies that a 15 per cent import duty has been levied on industrial alcohol and bioethanol produced in Pakistan, which favours the production and export of raw molasses over other more value-added products such as industrial alcohol and ethanol. As a result two of the seven operating distilleries have closed, and another five new distilleries will probably abandon plans to begin operations due to uncertainty market conditions.

Quotas

The use of quotas to regulate trade in biofuels is also a common practice in industrialised countries. The CBI and CAFTA, for instance, have established a complex import quota system for bioethanol from Caribbean countries. The use of quotas on feedstock trade is also important. For example, the EU regulates sugar imports through a complex system of duty free tariff quotas that favour imports from ACP countries and India.

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