VZCZCXRO0062
RR RUEHGR
DE RUEHKG #0755/01 2401800
ZNR UUUUU ZZH
R 271800Z AUG 08
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC 6700
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHBR/AMEMBASSY BRASILIA 0108
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KINGSTON 000755 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAR (ACADIEUX) (VDEPIRRO) 
WHA/EPSC (MROONEY) 
WHA/EPSC (FCORNEILLE) 
EEB/ESC/IEC/EPC (MMcMANUS) 
SANTO DOMINGO FOR FCS AND FAS 
TREASURY FOR ERIN NEPHEW 
 
E.O. 12958:  N/A 
TAGS: ENRG EINV ECON ETRD TRSY IBRD WTO XL JM
SUBJECT: JAMAICA: ETHANOL SECTOR, FULL OF HOPES AND FEARS 
 
REF:  A. KINGSTON 490 
¶B. KINGSTON 703 
¶C. 07 KINGSTON 1614 
 
SUMMARY 
------- 
 
¶1. (SBU) The Jamaican ethanol sector is seeing profitable growth as 
exports to the U.S. market rise, benefiting from trade preferences 
provided by the Caribbean Basin Initiative (CBI).  The Government of 
Jamaica (GOJ) has agreed to the sale of its former sugar estates to 
Brazilian firm Infinity BioEnergy (reftels), which should bring new 
investment to the sector.  However, as the island is starting to 
invest more in its ethanol production, it is increasingly concerned 
that this nascent industry will be hurt by the loss of CBI trade 
benefits or by a possible World Trade Organization (WTO) challenge 
brought by Brazil to end the U.S. tariff on ethanol.  The Ambassador 
and Emboffs met with the Minister of Foreign Affairs and Foreign 
Trade (MFAFT), Dr. Kenneth Baugh, to discuss efforts to expand the 
sector and rising fears that the U.S will reduce or eliminate its 
tariff on ethanol.  The MFAFT provided an Aide Memoire on ethanol, 
the text of which is included below. END SUMMARY 
 
GOVERNMENT CONCERNS 
------------------- 
 
¶2. (SBU) On August 22 the Ambassador, DCM, and Emboffs met with Dr. 
Baugh; Lorne Mcdonnough, Under Secretary for the Trade Division; 
Jacqueline Bell, Foreign Service Officer; and Chief Legal Counsel, 
Michelle Walker to discuss ethanol.  Baugh said, "Brazil is lobbying 
in the United States to have the ethanol tariff removed; this is a 
major concern of ethanol producers in Jamaica who fear they will 
lose access to the U.S. market if Brazil challenges the U.S. tariff 
at the WTO or if the CBI benefits are lost." 
NOTE: Geneva press reported on July 30 that Roberto Azevedo, 
Brazil's WTO ambassador, said there was a "strong possibility" that 
his country would make a formal complaint in September.  END NOTE. 
 
¶3. (SBU) Baugh asked about current legislation on ethanol and 
Econoff explained the status of two bills introduced in the U.S. 
House (H.R. 6324) and Senate (S.3080) that propose to lower the U.S. 
ethanol tariff from 54 cents to 45 cents to match the U.S. ethanol 
subsidy (lowered from 51 cents to 45 cents) under provisions of the 
2009 Farm Bill.  Baugh responded, "If that were to happen, we could 
still compete at 45 cents if the tariff is lowered to match the 
subsidy under the Farm Bill." 
 
ETHANOL AIDE MEMOIRE 
-------------------- 
 
¶4. (SBU) Below is the text from an Aide Memoire on ethanol delivered 
to Post on August 25. BEGIN TEXT: 
 
Developments regarding ethanol in USA 
 
As the Caribbean's principal exporter of ethanol to the USA under 
the Caribbean Basin Initiative (CBI), Jamaica is concerned about 
proposals in the USA to reduce or eliminate the additional tariff of 
54 cents per gallon on ethanol imported into the USA from non-CBI 
countries. 
 
In the WTO, we also note that in the Doha Round Agriculture 
negotiations, the USA's tariff on ethanol of 2.5% is likely to be 
reduced by 50% over 5 years. 
 
The removal of these tariffs will erode the margin of preference 
granted to Jamaica under the CBI. 
 
We have also noted reports that the Government of Brazil is planning 
to request consultations with the USA in the WTO concerning its 
additional tariff of 54 cents per gallon applied to ethanol imported 
from Brazil. 
 
Given the investment being made to expand the production of ethanol 
in Jamaica, the Government is concerned that the removal of the 
tariff, particularly the 54 cents, could have serious implications 
for the competitiveness of Jamaica's ethanol in the US market.  END 
TEXT. 
 
OTHER GOJ MEETINGS ON ETHANOL 
----------------------------- 
 
 
KINGSTON 00000755  002 OF 002 
 
 
¶5.  (SBU) On July 30, Econoff met on July 30 with Marcia Thomas, 
Senior Director for Trade at MFAFT, where she raised several 
concerns regarding Jamaica's benefits for exporting ethanol to the 
U.S. market.  Thomas was worried that duty free ethanol imports 
under the Caribbean Basin Initiative (CBI) could expire in September 
2010 when the benefits provided under the Caribbean Basin Trade 
Partnership Act (CBTPA) end.  Econoff explained that ethanol imports 
fall under the provisions of the Caribbean Basin Economic Recovery 
Act (CBERA), which do not expire. 
 
RETICENT TO LOBBY OTHER COUNTRIES 
--------------------------------- 
 
¶6. (SBU) Thomas raised concerns that Paraguay may also try to 
challenge CBI trade preferences in the WTO. When asked why the MFAFT 
does not has raise this issue directly with Paraguayan officials in 
order to protect this benefit, Thomas responded fatalistically, "the 
Paraguayans do not wish to engage on this issue." 
 
GROWTH IN ETHANOL SECTOR 
------------------------ 
 
¶7. (SBU) Despite the concerns expressed by Baugh, Jamaica continues 
to strengthen economic and political ties with Brazil (reftel A). 
Brazil has taken a particular interest in Jamaica's failed sugar 
estates; the Brazilian firm Infinity Bio-Energy has agreed to 
purchase the assets of the Sugar Company of Jamaica (SCJ).  This 
purchase includes the ethanol dehydration facility near the port in 
Kingston (formally owned by Brazilian-based Coimex) which is used to 
process hydrous ethanol from Brazil.  As part of the deal, the GOJ 
absorbed nearly USD 225 million in debt that was held by SCJ.  The 
GOJ, which still retains a 25 percent stake in the operation, is 
hoping that privatization will generate new investment in the 
sugar-based ethanol sector. (reftel B). 
 
¶8. (SBU) Jamaica Broilers (JB) has generated USD 100 million in the 
last year from sales of ethanol to the U.S. market and plans invest 
USD 15 million to expand capacity. (reftels B and C).  Also, earlier 
this summer Econoffs met with one of the principals of Tankweld, a 
well-known construction firm, who expressed interest in possibly 
developing an ethanol project in Jamaica.  He said any investment in 
the sector will be sensitive to the various tariffs involved; 
changes in these factors could change the viability of a project. 
 
COMMENT 
------- 
 
¶9. (SBU) Jamaica is aggressively moving forward in the ethanol 
sector, and there is likely to be further investment in the field. 
The GOJ claims they need CBI benefits in order to compete in the 
U.S. market which, given the early stages of the industry, is true. 
The push for ethanol is meant to generate economic growth; but more 
importantly Jamaica depends on foreign oil for nearly 90 percent of 
its primary energy demand, and its oil import bill is over USD 2 
billion.  Jamaica's two other largest industries, bauxite and 
tourism, are also sensitive to rising fuel prices; any 
diversification into renewable energy will thus generate benefits 
for other sectors.  Jamaica is a traditional sugar producer and 
hopes to use this strength to be able to develop its own domestic 
ethanol demand for electric power and transportation.