1Does

Does not include non-beneficiary countries, i.e., Guyana, Nicaragua, Cuba. 2Windward and Leeward islands, i.e., St. Kitts, Dominica.

Source: IOP Associates, Washington, D.C.

ATTACHMENT II

ESTIMATED PRODUCTION AND SALES OF WET ALCOHOL IN THE REGION

SOURCE:

IOP Associates, Washington, D.C.

(Data compiled from West Indies Rum and Spirits Association and individual companies)

Mr. ANTHONY. Thank you, Mr. Vind. Mr. Vaughn, would you care to proceed.

STATEMENT OF ERIC VAUGHN, PRESIDENT, RENEWABLE FUELS

ASSOCIATION

Mr. VAUGHN. Good afternoon. My name is Eric Vaughn and I am the president and chief executive officer of the Domestic Ethanol Trade Association here in Washington, the Renewable Fuels Association.

We represent over 100 facilities in the United States producing ethanol. Last year domestic ethanol production and sales reached 625 million gallons. We represent an industry that has invested in the United States in ethanol facilities over $1.5 billion.

The reason for requesting an opportunity, and we are grateful for having the opportunity, to testify before this committee today on the CBI is to dispel a few of the incorrect allegations that have been spread about the domestic ethanol industry with regard to expanding CBI ethanol production.

In the first place, the domestic ethanol industry is not opposed to CBI ethanol production. In fact, when the ethanol issue came up as the CBI was being debated in 1983, the domestic industry did not take a strong position against ethanol coming in from CBI nations and in fact, we stand here today to tell you that we are in favor of surplus sugar cane in the CBI being converted to ethanol and as we heard earlier this week on Tuesday from the administration witnesses, there are millions if not tens of millions of tons of surplus sugar cane in the Caribbean available for sugar cane conversion to ethanol today.

When we look at the kinds of facilities and the potential in the operations within the CBI for ethanol, our discussion and our differences come down to dehydration of someone else's ethanol, principally Spanish wet alcohol, and the full fermentation of CBI sugar into ethanol in the Caribbean.

I have here a chart that tries to show some of the existing and the potential developments and the economic advantages of full fermentation versus simple dehydration of ethanol.

We heard on Tuesday from administration witnesses that there are two major problems in the CBI. Of course, there are many others but two, Mr. Yeutter pointed out, the first was sugar which they happened to have a sizable surplus of and energy which they never have enough of.

You can begin to see the solution to two problems with one answer and that is ethanol.

There is currently in CBI nations from the 1981 demand for CBI sugar to the present demand for CBI sugar 9,770,000 tons of sugar cane that the United States is no longer buying from the CBI. That sugar cane at a conversion ratio of 17 gallons to the ton, represents 166,090,000 gallons of ethanol which should gain, and we would support gaining full duty-free access to the United States to supplement the efforts of the domestic ethanol industry in meeting U.S. octane demands. Again, 166 million gallons from surplus CBI sugar

cane.

Mr. Vind's testimony pointed up a serious problem and the problem is that there is a fair amount of uncertainty throughout the Caribbean with regard to ethanol development. However, this uncertainty has not been created by the introduction of legislation in the Congress but the uncertainty created in September 1984 by the Customs Service ruling granting his facility-Tropicana-a dehydration only facility, access to the CBI and the duty-free status for ethanol there.

The uncertainty came after facilities have already been built and operating in El Salvador, Guatemala and Costa Rica representing a little over 20 million gallons of production from sugarcane coming into the United States for duty-free access to the United States. Again, the domestic ethanol industry supports and encourages such development.

We would like to make a very quick comparison. About 150 miles from here in Franklin, KY, is a 20-million-gallon ethanol facility. It cost roughly $70 million to construct in 2 years, employs 120 fulltime workers, consumes 8.2 million bushels of grain at a value of about $23 million per year and they have had in the Franklin, KY, area an impact of 15 to 25 cents per bushel on the positive side for grain as a direct result of the increased demand for grain.

Fifty-three tons of coal are used for the heat source and the return to the local economy from this full fermentation ethanol facility is roughly $1.50 for every gallon of ethanol produced.

Similar numbers exist in the CBI full fermentation, full production facilities using CBI sugarcane.

The Tropicana facility, on the other hand, returns to the local economy somewhere in the area of between 10 and 17 cents per gallon. The 17 cents is on the high side. We think the loss of the revenue to the U.S. Treasury of 63 cents per gallon on every gallon that comes out of Tropicana, 20 million gallons, equalling $12 million per year, is not sufficient to justify the loss to the economy when compared to what could result from full fermentation and the use of full fermentation CBI sugarcane feed stocks.

Today we are seeing in the Tropicana facility something that many people in the ethanol industry are quite concerned about and have supported legislation to try to close what we regard as a loop hole in our tariff laws. The problem is that we are seeing the shipment of 20 million gallons annually of wet alcohol from Spain to the Tropicana facility in Jamaica. It is distressed wine, costs the Spanish Government $5.20 per gallon to buy it from the wine producers and store it. Tropicana buys it for 35 to 45 cents, ships it into the Jamaican facility and then transships it into the United States duty free. That is 20 million gallons of alcohol not produced from CBI sugar, not benefiting the CBI sugar industry and not employing one CBI agricultural worker to produce that alcohol.

The next step in the process for these dehydration only facilities, will be, if not Spanish wet alcohol, the use of heavily subsidized high-test molasses from Brazil.

The intent on the part of these dehydration facilities is not, and I stress not, to use CBI sugarcane. They will use CBI sugarcane only to the degree that they must or are forced to to reach the 35-percent substantial transformation rules. They are not built to use CBI sugarcane feedstocks.

They are built for one reason and one reason only. The reason you would ship something 4,000 or 5,000 miles across the ocean to a dehydration facility to stop off in the Caribbean to drop off 5 percent water content and pick up duty-free status, and enter that product into the United States with an unfair competitive advantage against the U.S. domestic ethanol industry and the full production CBI facilities, but creating a very serious and long-term detrimental impact on the establishment of full fermentation ethanol facilities throughout the Caribbean.

Mr. Chairman, thank you very much for the opportunity to testify.

[The prepared statement follows:]