Re: In Opposition to Amendments to the Caribbean Dear Mr. Dowley: This letter is in response to the February 5, 1986 request by the Subcommittee on Oversight for written comments evaluating the impact and effectiveness of the Caribbean Basin Economic Recovery Act ("CBERA" or "CBI"). In that regard, we wish to express our opposition to several bills referred to the Committee on Ways and Means -- H.R. 1567, section 2 of H.R. 1720, and sections 3(b) and 3(c) of H.R. 4094 -- which would limit drastically the applicability of the duty-free provisions of the CBI to imports from beneficiary countries of fuel grade ethyl alcohol (also called ethanol). We are submitting these comments on behalf of Allied Ethanol Limited ("Allied"), a joint venture between Burton M. Joseph of Minneapolis, Minnesota, Turner Investments Ltd., of Baton Rouge, Louisiana, and World Wide Ltd. of the Bahamas. In reliance on the CBI and a favorable letter ruling from the U.S. Customs Service, Allied has committed or expended over $13 million towards the construction of a facility in a CBI beneficiary country for the azeotropic distillation*/ of beverage grade alcohol to fuel grade alcohol for importation into the United States. The three bills identified above would eliminate the CBI's duty-free treatment for this product, causing a financial loss to Allied and frustrating the purposes of the CBI, including the advancement of the economic well being of the peoples of the Caribbean Basin. Azeotropic distillation is the commercial method by which 199.5 proof ethanol is manufactured from 150-190 proof alcohol raw material. To transform 150-190 proof alcohol to 199.5 proof ethanol of fuel grade quality, a chemical entrainer such as benzene must be used to break the bond between water and ethanol (termed an azeotrope) which exists at lower proofs. Simple distillation methods such as boiling cannot break this azeotrope. In addition, azeotropic distillation removes harmful chemicals from the alcohol, such as esters and aldelhydes. Fuel grade ethanol distillation facilities such as that now in progress by Allied involve precisely the type of capital investment and infusion of technical assistance into the Caribbean which was envisioned by the CBI. Far from being a pass-through operation or a means for non-Caribbean ethanol producers to avoid U.S. import tariffs, azeotropic distillation is a complex industrial process requiring large capital investment and sophisticated equipment and engineering, clearly the type of substantial manufacturing process encouraged by the CBERA. Nor will the domestic ethanol industry be injured by dutyfree imports of ethanol from the Caribbean, as domestic capacity is unlikely to meet expected U.S. demand in the long term. Indeed, at the time it enacted the CBERA Congress had given exhaustive consideration to such exclusions from the CBI as it found were warranted by other considerations. If the list of such exclusions is opened now for review because of pressures from special interest groups, the CBI may well be gutted of its underlying purpose, signalling a lack of U.S. committment to the welfare of the nations of the Caribbean Basin. For these reasons, we urge the Congress to reject H.R. 1567, section 2 of H.R. 1720, and sections 3(b) and (c) of H.R. 4094. II. CONGRESS SHOULD NOT EXCLUDE FUEL GRADE ETHANOL The azeotropic distillation facility proposed by Allied, and other similar fuel grade ethanol facilities now in progress or operation, will provide a significant infusion of capital and technical assistance into the Caribbean and further free trade between the U.S. and the region, in keeping with the purpose of the CBERA. As noted above, Allied already has invested and committed some $13 million to its project, in reliance on CBERA incentives. After construction is completed, Allied anticipates its facility will infuse an additional $8-9 million each year into the local economy for goods and services, including a significant number of new jobs. In the process of doing so Allied and other ethanol facilities will inject a state-of-the-art technology capable of and which will, in fact, make use of a vital raw commodity of the region -- sugar cane. This alternative use for sugar cane will represent an enormously important development for the region, given the extremely depressed world price of sugar today. Moreover, far from being a simple pass-through operation, such as dilution or simple blending, which are prohibited by the CBERA, azeotropic distillation is a complex chemical engineering process which substantially transforms the raw material into a new article of commerce via a significant manufacturing process. Indeed, the Customs Service has so held expressly in its original ruling to Allied (and in similar rulings to other comparably situated entities), rulings which it recently reaffirmed. See 51 Fed. Reg. 2990 (January 22, 1986). Thus, it is plain that both the purpose and practical effect of such a facility in the Caribbean comports with and will further directly the underlying goals of the CBI. To avoid pass-through operations, Congress imposed a 35% value-added requirement, which will be met by Allied's azeotropic distillation process. B. Congress Should Not Now Reconsider The Scope Allied, attracted by and in reliance on the investment incentives offered by Congress through the CBERA, made plans to invest in an azeotropic distillation facility in an approved beneficiary country, and obtained a Customs Service ruling that azeotropic distillation would in fact qualify ethanol produced in such a facility for duty-free treatment under the CBI. Substantial funds have been expended or committed towards setting up the facility, all of which would go for naught to the obvious injury of Allied should such ethanol be made ineligible for CBI benefits. - - Other American interests, too, have relied on the CBI and Customs Service rulings to make sizeable investments in azeotropic distillation facilities in the Caribbean. It would be injurious in the extreme for Congress now to reverse itself by excluding ethanol from the CBERA and invalidating these investments at this time. Further, such a decision would not only injure these individual investors; it would threaten as well the confidence of other potential investors in other projects who would fear that no sooner had they identified an appropriate investment project and committed funds, a domestic industry producing a comparable commodity would seek to have that product excluded from the CBI. Obviously, such an outcome would leave the CBI devoid of substance, */ and would severely undercut President Reagan's recently announced committment (during his February 20, 1986 visit to Grenada) to infuse new vitality into the CBI. At the time Congress originally considered passage of the CBERA, it took into account the fears of U.S. industries that duty-free imports might harm certain sectors of the domestic economy. After careful review, Congress chose to exempt certain products, such as textiles, from CBERA eligibility. Congress did not choose to exclude ethanol from the CBERA, despite the existence of past federal policies aimed at assisting the domestic ethanol industry. Congress was fully aware of these policies, and of domestic fuel needs, at the time it adopted the CBERA. There is no reason for Congress to reconsider its decision now. Contrary to their claims, domestic industries will not be harmed by imports of ethanol from the Caribbean. At present, domestic demand for ethanol outstrips domestic production, and with the implementation of the new EPA restrictions on lead in gasoline, the domestic requirement for ethanol could soar from the present 750 million gallons a year to over six billion gallons a year in the next ten years. It is, thus, clear that there is plenty of room in the U.S. market for both domestic producers and fairly traded imports from the Caribbean.*/ */ Allied notes that since the CBI has been in effect, the value of imports into the U.S. from CBI countries has actually declined by some 23%, while imports from the rest of the world increased by 36%. See Washington Post, Feb. 20, 1986 at A-1. Further disincentives to invest in the Caribbean world only worsen this situation. The domestic fuel ethanol industry has demonstrated well its ability to protect itself from unfairly traded ethanol imports. See, Fuel Ethanol From Brazil, 51 Fed. Reg. 5572 (Feb. 14, 1986) (antidumping), and Fuel Ethanol From Brazil, 51 Fed. Reg. 3361 (Jan. 27, 1986) (countervailing duty). Congress should not now revise the decisions it made when it passed the CBERA, particularly the revisions reflected in H.R. 1567, H.R. 1720 and H.R. 4094. Such revisions would only undermine the CBI and send a clear message to friendly nations in the Caribbean that the CBERA was merely a gesture, not a real commitment to aiding Caribbean Basin countries. If Congress demonstrates its willingness to withdraw CBI benefits from a new product every time a domestic special interest opposes entry of such a product under the CBERA provisions, no prospective investor will rely on the promise of CBERA incentives. This is particularly true if a project such as that of Allied, which has complied with every statutory and regulatory requirement, and which so directly furthers the purpose of the CBERA, can be derailed by an attack from special interest groups. Congress should not allow this to happen. Respectfully submitted, авл Richard B. Berryman, P.C. Alan Kashdan Fried, Frank, Harris, Shriver & Jacobson Counsel to Allied Ethanol Ltd. The American Hotel & Motel Association is a federation of hotel and motel associations located in the fifty states, the District of Columbia, Puerto Rico and the Virgin Islands, having a membership in excess of 8,800 hotels and motels accounting for over 1.25 million rentable rooms. Inclusive in our membership are all of the major hotel and motel chains. Our purpose in providing this statement to your subcommittee is to add our support to the individuals who recently testified before your subcommittee on the importance of tourism to the Caribbean Basin. We are aware that the primary orientation of the Caribbean Basin Initiative is duty free trade flowing from designated beneficiary countries to the United States. Also, that an indirect benefit to tourism has been provided by extending to CBI countries sharing tax information with the United States equal tax treatment for conventions held in those countries as is enjoyed by countries in what is known as the North American area. While we applaud this recognition of the importance of convention business in providing much needed revenue and jobs in the Caribbean Basin we must point out that very few of the countries able to avail themselves of this opportunity have chosen to do so. The American Hotel & Motel Association feels that what is needed is an awareness that tourism is a very significant economic factor in the entire Caribbean Basin. The Federal government, in addressing itself to the economic health of this area, must undergo a basic reorientation and recognize that tourism and its continued growth must be a primary focus of any efforts directed toward the Caribbean Basin. |