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Brazil drops zero-tariff ethanol import quota enjoyed by U.S. producers

RIO DE JANEIRO (Reuters) - Brazil allowed a non-tariff quota for ethanol imports to expire on Monday, which will result in U.S. producers having to pay a 20% tariff unless the Brazilian government takes new action.

“The expiry date was today and nothing was decided, but that does not stop the government taking a decision in the next few days,” a government official with knowledge of the matter told Reuters.

The tax-free import quota was used entirely by U.S. corn ethanol producers and allowed 750 million liters per year into Brazil, mainly to the northeast of the country.

It was a welcome volume for the U.S. ethanol sector, which has been hit by low sales due to the coronavirus pandemic. The U.S. farm lobby has asked President Donald Trump to press for the non-tariff quota’s renewal, which he has done given some ethanol states are key to his re-election.

But President Jair Bolsonaro’s government is facing pressure from Brazilian agribusiness not to extend the quota and instead negotiate a deal to include free trade for Brazil’s sugar entering the United States.

“The tendency is to drop the quota and sit at the table with the Americans to agree on a new, more balanced package,” said the source, who spoke on condition of anonymity. “Let it expire ... and then a new negotiation can start from scratch,” he added.

Evandro Gussi, head of Brazilian sugar and ethanol industry lobby Unica, said that any liberalization on ethanol trade should be followed by a U.S. move to reduce its import tax on Brazilian sugar. Otherwise Brazil would gain nothing by renewing the import quota or eliminating the tariff.

In 2019, Brazil sold $628 million of ethanol to the United States. The U.S. exported $543 million worth of the fuel to Brazil. With domestic sales down on both countries, both are looking to boost foreign sales.

Reporting by Rodrigo Viga Gaier; Writing by Anthony Boadle; Editing by Steve Orlofsky and Leslie Adler

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