WASHINGTON D.C. – Formally responding to comments made by Senator John McCain (R-AZ) and Senator John Barrasso (R-WY) that current ethanol tax and trade policies were illegal under World Trade Organization (WTO) agreements, the Renewable Fuels Association (RFA) today sent a letter to each senator explaining why the tax incentive (VEETC) and the offsetting secondary tariff are WTO compliant.

"While agreeing to disagree about the efficacy of the ethanol tax incentives, I respectfully submit that your assessment of the policies' compliance with WTO strictures is simply incorrect and not supported by any reasoned analysis or WTO precedent. We strongly disagree that this or any other part of the U.S. ethanol program is contrary to the WTO Agreement on Subsidies and Countervailing Measures ("SCM Agreement") or any other WTO regulation," wrote RFA President Bob Dinneen.

Dealing specifically with VEETC and a potential WTO challenge, Dinneen explained, "…in response to a potential case, the U.S. is able to raise powerful defenses to an actionability finding against VEETC, based on the need to conserve fossil fuel, or the fact that that it is available to both domestic and imported ethanol. If the credit is not shown to be an arbitrary or unjustifiable discrimination between countries, or a disguised restriction on international trade, it will likely survive any WTO challenge."

Referring to the secondary tariff, Dinneen noted that "it is not a subsidy" as it goes to the U.S. Treasury, not a specific company or industry. Further, Dinneen highlighted that fact the tariff acts only to offset the value of VEETC which "is available to both imported and domestically produced ethanol." Finally, Dinneen pointed out that "the secondary tariff has been properly notified and scheduled according to WTO procedures."

Summing up RFA's defense of current ethanol tax and trade policy, Dinneen writes, "…we do not believe that your recent comments regarding the WTO compliance of U.S. ethanol tax policy are warranted or justified by any factual or trade law precedent. Moreover, we strongly believe that the existing market-based incentives effective support ethanol growth in the U.S., without creating an unreasonable or unnecessary barrier to trade."

A copy of the letter sent to Senator McCain can be seen here. A copy of the letter to Senator Barrasso can be seen here.

Informally responding last week, RFA Legislative Counsel Ed Hubbard responded to these charges on the RFA blog here.

SOURCE: Renewable Fuels Association