Summary: GAO discussed Caribbean Basin Initiative (CBI) countries' imports of fuel ethanol to the United States. GAO noted that: (1) based on legislation allowing CBI countries to import fuel ethanol duty-free if regional production added at least 35 percent of the value, several companies built dehydration facilities to produce ethanol and imported low-cost, heavily subsidized European wine alcohol, rather than using local feedstock; and (2) to discourage such pass-through operations, ensure meaningful production and employment, and eliminate CBI ethanol producers' unfair cost advantage over the U.S. ethanol industry, new legislation provided that, beginning in 1989, CBI ethanol qualified for duty-free entry only if regional raw materials accounted for at least 75 percent of the ethanol's value. GAO also noted that: (1) gasoline and sugar prices precluded CBI ethanol producers from being cost-competitive with more than a 10- to 30-percent local feedstock requirement; (2) although dehydration of imported wine alcohol provided significantly less employment and local production than full fermentation of local feedstock, it did provide some economic benefits through employment, foreign exchange, capital investments, taxes, and revenues; (3) CBI ethanol producers do not receive state tax incentives that many U.S. ethanol producers do; and (4) CBI producers may not be able to secure sufficient quantities of surplus European alcohol stocks to produce ethanol at competitive prices.
