Production and use of fuel ethanol in Brazil - BAFF

than necessary to achieve their goals, such as national security and the protection of
human life and health or the environment. The mandatory status of the anhydrous
ethanol addition to the gasoline marketed in Brazil is not in breach of the WTO
Agreement on Technical Barriers to Trade (TBT), as it is intended to achieve the
legitimate goal of ensuring the environmental protection level determined by the
Brazilian government in terms of vehicle emissions.
On the other hand, there is not requirement in the Brazilian legislation that the
anhydrous ethanol for blending to gasoline, or even the ethanol grade that is used
directly in engines, should be produced in Brazil. Likewise, there are neither tariff
nor non-tariff barriers imposed on ethanol imports. Moreover, the mandatory
nature of the anhydrous ethanol addition to gasoline in Brazil does not represent
a subsidy either under the WTO Agreement on Subsidies and Countervailing
Measures, as it neither involves any financial contribution from the government,
nor does it represent any such income or price support as could influence ethanol
imports or exports. This is corroborated by the fact that the price asked for gasoline
from the end consumer, the price asked for ethanol and the gasoline and ethanol
supply volumes are all determined by the market.
b) Differentiated IPI rates for vehicles
Another argument often used in accusations is the differentiated IPI (Tax on Industrial
Products, in Portuguese) rates imposed on sales of ethanol and gasoline-fueled
vehicles. Justified by the environmental benefits provided by the lowest emissions
of vehicle pollutants resulting from the burning of fuel ethanol, differentiated IPI
rates have been fixed by the Government for vehicles running on hydrous ethanol
and gasoline (in practice, gasoline mixed with anhydrous ethanol). The tax rate
differentiation is determined according to the vehicle class, which is defined in terms
of cylinder capacity.
With the launch of Flex-Fuel vehicles, which can run on any proportion of hydrous
ethanol and gasoline (containing 20 to 25 percent anhydrous ethanol), this group of
vehicles began to be match, for IPI purposes, with vehicles that run exclusively on
hydrous ethanol.
For vehicles equipped with up to 1,000 cc (cubic centimeters) engines, which
represent more than 56 percent of all sales, there is no tax differentiation based on
the fuel type used. For larger vehicles, equipped with engines ranging from 1,000
to 2,000 cc and vehicles with more than 2,000 cc engines, the IPI differentiation
does no result a significant advantage as percentage of the end price of the vehicle,
thereby being not a factor that could be consider to influence the vehicle purchase
A. Fuel ethanol: Activities in Brazil and the world context
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