Washington

Imports fuel ethanol debate

By CHARLES J. ABBOTT

RICHARD VIND, settling into a chair, agreed "I'm the guy" people are talking about. Indeed he is. After last year's complaints about Brazilian imports, the fuel alcohol industry and several midwestern congressmen are skeptical of what Vind is doing in Jamaica. Critics say Vind, a marketer of ethanol and gasohol in the U.S. and chief executive officer of Tropicana International, which operates an alcohol distilling tower in Jamaica, exemplifies the new threat to the domestic producers of ethanol. The disagreement points to some tarnish on the glittering appeal of the ethanol industry.

The promise is enticing: Turn surplus crops into fuel, thereby providing some energy independence for an oil-hungry country. At the same time, it provides a source of much-needed farm income. Gasohol, a 9-to-1 mix of gasoline and grain alcohol, got its start in the 1970s. Its boosters tell a story of success: Last year about 240 million bushels of corn were consumed to increase farm income by $800 million.

Gasohol accounts for a small but healthy share of U.S. fuel sales; in Iowa it holds 30 percent of the market. Ethanol production in the U.S. last year was about 625 million gallons. Archer Daniels Midland Co. (ADM), based in Decatur, produced half of it and is also the preeminent marketer. That makes ethanol a standout in the relatively flat Illinois economy.

Now, the argument goes, outsiders want to horn in on a good thing. Several midwestern congressmen say some importers are trying to dodge a 60-cent-a-gallon tariff on ethanol. The congressmen have filed bills to stop them. "Very simply, these imports threaten the future of a promising domestic ethanol industry, undercut an important new market for American farmers and could drain millions of dollars from the U.S. treasury in forfeited duties, increased farm subsidies and decreased tax revenues," said U.S. Rep. Richard Durbin (D-20, Springfield) when the House Ways and Means trade subcommittee discussed alcohol tariffs in February.

The finger is being pointed at Vind and others who use Caribbean plants to remove the final impurities from alcohol and then ship the 200-proof alcohol to the U.S. The Customs Service has ruled that Vind qualifies under the Caribbean Basin Initiative for an exemption from the 60-cent import tariff because the alcohol undergoes "substantial transformation." Rep. Tom Daschle (D-S.D.) called a dehydration operations "this trans-shipping scheme," and Eric Vaughn, president of the Renewable Fuels Association, said they exist "with the sole purpose of dropping off 5 percent water and picking up the exemption."

Vind tells a different story: Beginning in 1983 and 1984 he was unable to obtain steady supplies of alcohol for his ethanol and gasohol distribution company. In addition, domestic producers denied him access to ethanol in some states, he told the House subcommittee. Chairman Sam Gibbons (D-7, Fla.) inquired if Vind thought marketing plans were the reason for his problems. Referring to antitrust law, Gibbons asked, "Did you ever try to triple-damage sue them?" Vind's response: "It has been considered."

As that exchange shows, fuel alcohol seems to be a rough business. There are complaints that ADM uses its muscle unfairly to stifle competitors.

Durbin and Rep. Jim Leach (R-l, Iowa) got a bit testy when Rep. Richard Schulze (R-5, Pa.) asked how much protection U.S. firms need, given their spectacular growth and the complaints about ADM. "If the gentleman is suggesting we should turn our backs . . . ," Durbin said in beginning a reply. The comments became sharper when Schulze inquired "about all this talk . . . about ADM pulling the strings." Daschle called it "a lot of baloney." Leach said, "The gentleman from Pennsylvania is impugning the motives of witnesses."

Leach and Durbin argue that putting the tariff on alcohol from operations like Vind's will encourage the construction of full-process alcohol plants in Caribbean nations — meaning more jobs in those nations. "We are jeopardizing their economic development by not closing these loopholes," said Leach. Vind said that Jamaica welcomes the 67 jobs at his plant, and added that he will not be put out of business if the law is changed.

From a political perspective the alcohol issue, phrased as protecting farms and home-state industries from unscrupulous competitors, is unlikely to hurt any congressman. And it is remarkable how hopes for Caribbean development can agree with the goals of U.S. producers.

The tariff dispute leads to the question often faced by government: How much help does an industry deserve? Ethanol has its merits, particularly since oil shortages can recur, but incubating the industry carries a price. The federal government forfeits 6 cents in fuel tax for every gallon of gasohol sold; many states, including Illinois, offer similar exemptions. Incentives like tax credits and loan guarantees also have been offered — adding to the subsidy. Tax breaks initially were offered to make gasohol price-competitive, but the phase-out of lead in gasoline may establish ethanol in the desirable niche of an octane booster that is environmentally acceptable. The federal fuel-tax break is due to end in 1992, and Vaughn says that with a few more years to amortize construction costs and to learn how to lower production costs, the industry will be in shape to go it alone.

"Can the industry stand on its own feet?" Schulze asked at the subcommittee hearing. "Ultimately, absolutely yes," Daschle replied. "Not today?" Schulze asked.

38/April 1986/lllinois Issues