August 23, 2017 / 11:02 PM / in 3 months

UPDATE 2-Brazil approves quota, 20 pct tax on ethanol imports

(Adds comments from Brazilian industry group, U.S. trader)

BRASILIA/SAO PAULO, Aug 23 (Reuters) - Brazil’s government on Wednesday approved taxing ethanol imports for the first time in a move to protect local producers from growing shipments coming from the United States.

Brazil’s Agriculture Ministry said the country’s foreign trade chamber, known as Camex, approved a 20-percent tax on ethanol imports, which would be levied only after a tax-free quota of 600 million liters per year is surpassed.

Brazilian ethanol imports reached 1.29 billion liters in the first half of the year alone, a 330 percent increase compared to the same period a year earlier.

The move ends an agreement between the world’s two largest ethanol producers, Brazil and the United States, to keep global ethanol trade free of taxes to boost the industry.

It should add to trade tensions between the two agricultural powerhouses. The U.S. government in June banned imports of Brazilian fresh beef over food quality issues.

The tax will be in place for two years, and after that would be reevaluated. The measure enters into force after publication in the official gazette, which should happen in coming days.

“The decision will give us some short-term relief,” said Eduardo Leao, a director at Brazil cane industry group Unica.

He said there is a “structural surplus” of ethanol in the U.S. due to restrictions in traditional export markets for the country, such as China and Europe. “Brazil became the destiny of that surplus,” Leao said.

U.S. IMPACTED

The measure will almost entirely impact U.S. ethanol producers, as virtually all Brazilian imports come from the United States.

“It’s bearish – puts limits on exports to Brazil,” said a U.S. ethanol trader who asked not to be named. “We are over-produced, with no China, no Europe and now limits to Brazil.”

The U.S. exported 1.045 billion liters of ethanol to Brazil in the first six months of the year, and was on pace to surpass what was record shipments of 1.057 billion liters during the entire previous year, according to U.S. Department of Agriculture data.

“We are disappointed and discouraged to see the ruling out of Brazil today,” said a joint statement from U.S. Renewable Fuels Association (RFA), U.S. Grains Council (USGC) and Growth Energy.

“This action goes against Brazil’s longstanding view that ethanol tariffs are inappropriate and will effectively close off an open and bilateral trading relationship that benefits all sides,” it said.

Reporting by Ricardo Brito in Brasilia; Roberto Samora and José Roberto Gomes in Sao Paulo; Additional reporting by Michael Hirtzer in Chicago and Chris Prentice in New York; Writing by Marcelo Teixeira; Editing by James Dalgleish and Chris Reese

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