Ethyl Alcohol and Mixtures Thereof: Assessment Regarding the Indigenous Percentage Requirements for Imports in Section 423 of the Tax Reform Act of 1986
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ETHYL ALCOHOL AND MIXTURES THEREOF: ASSESSMENT REGARDING THE INDIGENOUS PERCENTAGE REQUIREMENTS FOR IMPORTS IN SECTION 423 OF THE TAX REFORM ACT OF 1986 Report to Congress on Investigation No. 332-261 Under Section 332 (g) of the Tariff Act of 1930 USITC PUBLICATION 2161 FEBRUARY 1989 United States International Trade Commission Washington, DC 20436 UNITED STATES INTERNATIONAL TRADE COMMISSION COMMISSIONERS Anne E. Brunsdale, Acting Chairman Alfred E. Eckes Seeley G. Lodwick David B. Rohr Ronald A. Cass Don E. Newquist Office of Industries Vern Simpson, Acting Director This report was prepared principally by Edmund Cappuccilli and Stephen Wanser Project Leaders Antoinette James, Aimison Jonnard, Eric Land and Dave Michels, Office of Industries and Joseph Francois, Office of Economics with assistance from Wanda Tolson, Office of Industries Under the direction of John J. Gersic, Chief Energy and Chemicals Division Address all communications to Kenneth R. Mason, Secretary to the Commission United States International Trade Commission Washington, DC 20436 PREFACE On September 23, 1988, the United States International Trade Commission, as required by section 1910 of the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418), 1 instituted investigation No. 332-261, Ethyl Alcohol and Mixtures Thereof: Assessment Regarding the Indigenous Percentage Requirements for Imports in Section 423 of the Tax Reform Act of 1986, under section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)). Congress directed the Commission and the Comptroller General of the United States (who is submitting a separate report) each to undertake a study of whether the definition of indigenous ethyl alcohol or mixtures thereof used in applying section 423 of the Tax Reform Act of 19862 is consistent with, and will contribute to the achievement of, the stated policy of Congress to encourage the economic development of the beneficiary countries under the Caribbean Basin Economic Recovery Act (CBERA) and the insular possessions of the United States through the maximum utilization of the natural resources of those countries and possessions. Specifically, the Commission was asked for an assessment regarding whether the indigenous product percentage requirements set forth in subsection (c)(2)(B) of section 423 are economically feasible for ethyl alcohol producers; and, if that assessment is negative, to supply recommended modifications to the indigenous product percentage requirements that will ensure meaningful production and employment in the region, will discourage pass-through operations, and will not result in harm to producers of ethyl alcohol, or mixtures thereof, in the United States. Additionally the Commission was . directed to provide an assessment of the ·effects of imports of ethyl alcohol, and mixtures thereof, from such beneficiary countries and possessions on producers of ethyl alcohol, and mixtures thereof, in the United States. Notice of the investigation was given by posting copies of the notice of investigation at the Office of the Secretary, U.S. International Trade Commission, Washington, DC, and by publishing the notice in the Federal Register (53 F.R. 38794) on October 3, 1988.3 A public hearing on the investigation was held on October 27, 1988, at the U.S. International Trade Commission building, 500 E Street SW., Washington, DC, and all persons who requested the opportunity were permitted to appear in person or by counsel. 4 The Commission also collected data and information from responses to questionnaires sent to certain U.S. and Caribbean Basin firms that have produced fuel ethanol.5 In addition, information was gathered from other sources, including various public and private sources and from on-site inspection of various U.S. and Caribbean Basin production facilities. 1 See app. A. 2 Ibid. 3 See app. B. ' A list of witnesses appearing at the heating appears in app. C. 11 Ethanol is another name for ethyl alcohol. CONTENTS Page Preface .............................................. · · · · · · · · · · · · · · · · · · · · · · · · Executive Summary . vii Chapter 1. Introduction .................................· ~ ............ ·. 1-1 Congressional request . 1-1 Product definitions . 1-1 Events preceding the Congressional request . 1-1 Scope of the investigation ............................. ; . 1-2 Chapter 2. The Caribbean Basin Sugar Industry . 2-1 Introduction .......................................... ·. .. 2-1 Sugar production and trade in CBERA-beneficiary countries . 2-1 Sugarcane production ............................................ '. 2-1 Sugar production ...........·. 2-1 Sugarcane processing . 2-2 Sugar trade . 2-2 Molasses production and exports . 2-2 Sugar and molasses prices . 2-2 Sugar prices . 2-3 Molasses prices . 2-3 U.S. and EC sugar policies . 2-3 U.S. sugar policy . 2-3 EC sugar policy . 2-4 Chapter 3. CBERA Fuel Ethanol Industry . 3..:.1 Introduction . 3-1 Process description .......................... -. : . 3-2 Caribbean ethanol production costs . 3-2 Country summaries . 3-3 Costa Rica ........................ , . 3-3 Jamaica . 3-4 U.S. Virgin Islands .......... ·............................................... 3-5 Bahamas . 3-6 Other countries . 3-6 Alternative sources of wet ethanol . 3-7 European wine alcohol . 3-7 Brazil ........................................._. .. 3-9 Chapter 4. U.S. Fuel Ethanol Industry and Market . 4-1 Introduction . 4-1 The fuel ethanol industry and market in the United States . 4-1 The use of ethanol-blended gasoline . .. 4-1 U.S. production and sales of fuel ethanol . 4-2 Imports . 4-3 Gasoline and fuel ethanol distribution and marketing . 4-4 Other octane enhancers used in gasoline . 4-4 Background . .. 4-4 Methanol and methanol blends . 4-7 Methyl tert-butyl ether . 4-8 Ethyl tert-butyl ether . 4-8 Other fuel additives . 4-9 Sources of future uncertainty . 4-9 iii CONTENrs-Continued Page Chapter S. The Impact of Alternative Domestic Content Requirements . 5-1 Introduction . 5-1 CBERA-feedstock requirements and the cost of production . : . 5-1 Employment in the CBERA-ethanol industry ..._ .................... ::· ........... '. 5-4 Net com costs and domestic production costs . 5-6 . TJ:le effects of alternative content requirements . 5-6 Chapter summary ..................................................·......... 5-10 Appendixes A. Excerpts from the Tax Reform Act of 1986, 'the Omnibus Trade. arid Competitiveness .Act of 1988, and the Tariff Schedules of the United States Annotated (1987) ........ : . A-1 B. Notice of Institution of Investigation No. 332-261 in the Federal Register . B-1 C. Calendar of Public Hearing ................................................ C-1 D. The Sugar Industry in the Major CBERA-Beneficiary Countries ................. · D-1 Barbados .................... ; ...................................... D-2 Belize .................................. : ........................... D-2 Costa Rica . : . : . ; . D-2 Dominican Republic ........ : ......................................... D-3 El Salvador ......................................................... D-3 D-3 ~~~~e~~I~. : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : :·: : : : : ':·: : : : : : : : : : : : : : : : : : : : D-4 Honduras . ; .................. ; ......... : .................... ._ : ...... " D-4 Jamaica .... ; .. ; ; .............. ; : ..... : ...... · · · · ... · · ·.· · · · · · · · · ·. · ~ ·, · D-4 . Panama ........................ : ............................. ·..... ~ . D-5 St. Christopher-Nevis (St. Kitts)' ........ ; .............................. ·.. D-5 Trinidad-Tobago ................................................... : .. D-5 E. U.S. and CBERA Production Processes for Fuel-Grade Ethanol ..... , .......... E-1 U.S. pr~d~ction process ; ................................... : ......... '. ...._ · E-2 Dry milhng . ..