JAMAICA'S ethanol exports could be dealt a severe blow if the two US presidential candidates follow through on their respective energy policies and adjust trade agreements that control the entrance of the fuel into the US.

MULLINGS... we would still have a role to play but there is also another opportunity to Europe through the EPA

"There are clouds on the horizon, but if it means that much to us then we must defend it," said Karl James, a prominent Petroleum Corporation of Jamaica (PCJ) board member.

Acknowledging that there could be problems after 2010 when the Caribbean Basin Initiative (CBI) comes up for review, energy minister Clive Mullings said that there were export options for ethanol through the Economic Partnership Agreement (EPA) with Europe. He added that apart from Brazil, Jamaica currently exports the largest amount of ethanol to the US and would seek to continue along that path even if the duty-free arrangement is removed.

"We would still have a role to play but there is also another opportunity to Europe through the EPA," Mullings told the Sunday Observer yesterday.

Jamaica ethanol exports to the US market, under the CBI, benefit from a duty-free access, while Brazilian ethanol attracts a 54 US cent per gallon tariff for entry.
The island, as a consequence, is attractive to Brazilian energy companies that seek to reroute the fuel as the tariff restriction pushes up the price of ethanol imported directly into the US from the South American country.

But Republican presidential candidate John McCain has advocated the removal of tariff on Brazilian ethanol, a move that effectively would end up with Jamaica competing with the south American country for the US ethanol market. Brazil, which produces ethanol from sugar cane, is the world's largest producer of the fuel outside of the US where it is made primarily from corn.

The Democrat's nominee Barrack Obama, on the other hand, has argued for increased ethanol production inside the US as part of his alternative energy plan and thrust to put more jobs in the hands of Americans. This direction could eventually lead to a removal of the duty free status for Caribbean States, also leaving Jamaica to compete with the ethanol kingpins Brazil.

While ethanol from the Caribbean is allowed in the US duty free, Brazilian ethanol, although attracting a tariff if exported directly, can nonetheless enter the US duty-free through Caribbean states, to a maximum quota of seven per cent of the total US production.

Most Caribbean countries setting up local ethanol production have done so with Brazilian technical and raw-material assistance.

The local state-owned Petrojam Ethanol Limited, for instance, is joint venture with Coimex of Brazil that produces anhydrous ethanol from "wet" ethanol imported from Brazil, primarily for export market into the US.

James, however, explained that this type of arrangement has come under scrutiny in recent times, not only by US interests but also by the Brazilians who are advocating for the removal of the 54 cent tariff.

With the existing tariff arrangements Caribbean countries such as Jamaica have become increasingly attractive for investment by Brazilian energy companies like Coimex and Infinity Bio- Energy.

Infinity is currently in protracted negotiations with the Jamaican government for the sale of the Sugar Company of Jamaica and the conversion of five sugar factories to produce ethanol that can enter the US at the cheaper rate.

However, a removal of the Brazil tariff by the US administration would effectively negate that Caribbean competitive advantage.

"If that scenario materialises then the Brazilians would not necessarily need Jamaica," James admitted.
He, however, noted that adjusting the CBI terms was not a simple procedure.

"It is not easily changed, but it can be changed," he added.

Chris Levy of JB Ethanol, one of Jamaica's largest exporter of ethanol, agreed with James.

"The CBI relationship is not a very easy proposition to change," said Levy, "But it can be done."

"If so it would put the future of JB under serious pressure, as the US is our preferred market," Levy told the Sunday Observer. "We would probably then have to look to Europe," he surmised.

James though, alludes to regional political overtones that could mitigate removing the duty-free status for the Caribbean and also the tariff on Brazilian ethanol.
"You now have the US's arch-enemy, Chavez, doing a lot for the Caribbean people," he argued. "If the duty free access is removed or the tariff dropped on Brazilian ethanol then the Caribbean states would look to Chavez." Futhermore, he said, "Chavez and Lula (president of Brazil) do not see eye-to-eye".

James further contended that McCain's plans for the removal of Brazilian tariff would be a difficult sell in Washington as it was previously attempted without success by the George Bush administration.

"McCain would have a fight on his hands," he said. "(George) Bush tried to veto it, but was passed."
In the meantime Jamaica has not attained its US ethanol export quota of 452 million gallons for the year, according to James.

"So far we have shipped about 294 million gallons," he said adding that Jamaica is the largest supplier of ethanol to the US apart from Brazil.

The PCJ board member added that he does not feel that delay in the completion of the deal between government and Infinity was as a result of stalling on the part of the Brazilian company awaiting the US election outcome.

"They already have a market to supply the 18 million gallons a year we need for the E10 supply," said James who is also general manager of Jamaica Cane Product Sales the state-owned company that sells sugar overseas.

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