- The Washington Times - Thursday, March 29, 2007

During his visit to Washington this weekend leftist Brazilian President Luiz Ignacio da Silva, also known as Lula, will bridge the ideological differences that separate him from President Bush by means of their agreeing on the necessity of energy security in this hemisphere. The visit marks a turning point in U.S.-Latin American relations, which have languished since September 11, 2001.

Mr. Bush wants what Lula and his countrymen have achieved: energy independence from fossil fuels. Sixty percent of Brazil’s entire transport fuel comes from ethanol, a biofuel derived from sugar cane. Mr. Bush also wants today what Brazil accomplished over 30 years. Whether the U.S. achieves this feat will be determined by special interests in Congress, the same groups that have made U.S. farm policy Byzantine in its complexity and inefficiencies.

The U.S.-Brazil Ethanol Partnership that both presidents will sign at Camp David this week will mark a second chance for the Bush administration to win new friends in Latin America. The partnership envisions joint ventures in Central American and the Caribbean to help countries in those regions gain new technologies by tapping the renewable energy potential from tropical agricultural bounties that have no external markets. The agreement also lays out ways in which Brazilian technology and knowledge can be shared with U.S. producers to accelerate our own efforts toward energy self-sufficiency.

Unfortunately, this initiative may be blocked by an entrenched U.S. farm lobby that fears Brazilian ethanol will displace our corn-based equivalent through ending the tariff on imported ethanol as part of the partnership deal.

U.S. protectionism since 1978 has allowed a 51-cent-per-gallon federal tax credit to go to U.S. corn-ethanol producers. Brazilian ethanol is penalized by an import duty of 54 cents, plus an ad valorem tariff of 21/2 percent. U.S. ethanol importers bypass this tariff using provisions of the Caribbean Basin Initiative, which allows Brazilian-produced sugar-cane ethanol to enter the United States duty free. At current import rates, we are nowhere near the allowable 60-million gallons or 7 percent of the U.S. domestic ethanol market that the CBI envisioned.

So what do corn farmers have to fear? A cheaper and more energy-efficient product made from Brazilian sugar cane that would compete with corn-based ethanol if the federal and state subsidies were removed. With corn at $4 a bushel today, twice the price of a year ago, and 20 percent of this corn used to produce ethanol, any change to the farmer’s status quo would result in a bitter political contest between farm state legislators and free-traders. Economists estimate a conservative figure for this government help in 2006 was between $5 billion to $8 billion, with a considerable chunk of this money coming from the 51-cent tax refund.

It is tempting to say the farm lobby is unrealistic about global markets given President Bush’s call in his 2007 State of the Union Address for a 20 percent reduction in U.S. gasoline consumption by 2017. He also asked U.S. energy producers to consume 35-billion gallons of alternative fuels, which by 2017 would require a sevenfold increase in ethanol. To meet this demand, the U.S. will have to turn to Brazil since there are few other readily available renewable energy alternatives.

A U.S.-Brazil deal on biofuels is also the means to a larger end — it would help our nation restore a more balanced relationship with the rest of Latin America. President Lula could become an important interlocutor with Venezuela’s Hugo Chavez and could potentially serve as a mediator in other regional energy disputes such as that in Bolivia. Within the Western Hemisphere, Brazil is heading the only U.N. peace operation in Haiti in part because the United States, blindsided by Iraq, has been too preoccupied to manage the crisis south of the Florida Keys. While other Latin American countries remain at odds with the U.S. “war on terror” and the counter-narcotics agenda, our relationship with Brazil is secure.

It would be regrettable if President Bush, who needs regional friends and allies more than ever, squanders this opportunity to consolidate our U.S.-Brazil partnership by taking discussion of the ethanol tariff off the table. Lula wants something to deliver in this deal, and failure to bring home some promise on tariff relief would compromise an important regional relationship.

The Bush administration could rehabilitate its image in the Americas by taking bold action now to remove the tariff. If our government really wants to fulfill the promise the president made to the American people about energy independence, it must move now to match rhetoric with action. Short of this, any alternative energy strategy will merely be viewed as symbolic.

A lame duck president, George W. Bush need not worry about taking a position against the farm-state interests, whose sacred subsidies will stall growth of a global ethanol market. U.S. farmers need not fear exclusion from the marketplace in a world where the search for energy is insatiable. Fighting for their corn subsidies and blocking tariff relief only delays the inevitable, threatens long-term economic growth, and endangers a powerful new energy alliance our nation must embrace.

Johanna Mendelson-Forman is a senior associate at the Center for Strategic and International Studies, specializing in Latin American security and energy issues.

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