Mr. ANTHONY. Thank you, Mr. Vaughn. At this time, I would like to recognize our colleague, Mr. Rangel, who would have a comment to make.

Mr. RANGEL. Thank you, Mr. Chairman. I thank my colleague, Mr. Schulze. I am here as a courtesy to my colleague, Congressman Fuster, because I have to return to New York City to fulfill a preexisting engagement. I regret this schedule conflict because I wanted so badly to be here to listen to Mr. Colorado's testimony. I take this opportunity to inform you that as apprehensive as the Puerto Rican people are and indeed with policies that change from day to day should be, over the status of section 936 of the Internal Revenue Code, that yesterday we heard the administration lock itself into concrete not only in support of the concept of 936, but also committing itself to the use of section 936 to stop Communist aggression in this part of the world by providing significant private investment through the twin-plant concept.

I think this commitment to fulfill the promise of the Caribbean Basin Initiative will hold us well until we see what happens in the Senate, but at least you go home today knowing that the administration is with us.

That is, the State Department, the U.S. Trade Representative, the Commerce Department, and the Treasury all believe that section 936 as utilized in Puerto Rico and beyond might be the concept to spread the gospel of free enterprise throughout the Caribbean region.

Also the question regarding whether or not your Governor is committed to making $100 million available has been changed. Yesterday we were assured that the private sector and the Government of Puerto Rico will be working toward that end.

So good luck. I am sorry I have to leave and I thank you for permitting my intrusion into these proceedings.

Mr. ANTHONY. Thank you, Mr. Rangel. We are always welcome for your input. Mr. Hallberg is now recognized.

STATEMENT OF DAVID E. HALLBERG, VICE PRESIDENT,
CHEMICAL FUELS CORP.

Mr. HALLBERG. Thank you very much, Mr. Chairman. My name is David E. Hallberg. I am the vice president for governmental and international affairs of the Chemical Fuels Corp. which is based in Chamblee, GA.

In January 1981 I formed the Renewable Fuels Association and had the privilege as serving as its president and chief executive officer for 4 years.

We greatly appreciate this opportunity to make known some of our views concerning the importance of congressional support for ethanol production both in the United States and in the Caribbean and insular areas. We recognize the complexity of the issue and hope that we can make a few points that are of some value to your consideration.

As we described in testimony before the Trade Subcommittee on February 7, CFC is the largest formulator and marketer of alcoholblended fuels in the Southeastern United States.

Because U.S. producers of grain-derived ethanol require State tax support in addition to the Federal tax support to be competitive in the gasoline marketplace and because we operate in States which do not offer such State tax support, we have had no alternative but to look to foreign supplies of renewably derived ethanol for the initial stages of our marketing program.

In its wisdom, the Congress has made commitments to two sets of interests that may at first glance appear to be in conflict, but that in fact should be in harmony.

On the one hand, in establishing the Federal tax support for the fuel ethanol industry through 1992, the Congress stimulated an impressive new industry which responded by investing hundreds of millions of dollars in facilities to produce a high value liquid fuel and octane enhancer that substantially contributes to national agricultural, energy and environmental objectives.

On the other hand, by enacting the Caribbean Basin Economic Recovery Act [CBERA], the Congress and especially this committee also made the necessary commitment to a critically important area of the world with respect to U.S. security interests.

The CBERA was consciously designed to stimulate private sector investment in manufacturing enterprises that create employment and diversify economic activity.

To achieve this, it afforded duty free access to eligible products including ethanol through 1994. The success of this program will in the final analysis depend heavily on the extent to which private sector investors perceive Congress' determination to avoid tampering with its commitment to the CBERA.

In short, the congressional commitment to the CBERA, just like its commitment to the domestic ethanol industry, must be upheld. We acknowledge the committee's interest in addressing the legitimate issues raised by dehydration of 190-proof ethanol under the substantial transformation rulings reaffirmed by the Customs Service.

However, we also strongly believe that there is a reasonable solution to this problem which can in fact benefit both the domestic ethanol industry and our Caribbean and insular territory commitments.

I would like to submit two principles that I think could be helpful in terms of looking at a workable compromise.

First, I think it is very important to recall and remember that Congress intended the fuel ethanol industry to be national in scope. In enacting the Energy Tax Act exemption of 1978, Congress clearly intended that the program should be broad based and national in scope.

While recognizing the importance of the industry's value as a new outlet for surplus grain, the Congress also recognized that ethanol could be derived from a wide array of other renewable feedstocks including sugar.

Even more importantly, ethanol's benefits go far beyond just its agricultural dimensions. Especially now after EPA's 91-percent reduction in gasoline lead levels, the environmental and energy importance of alcohol-blended fuels for the entire United States is greater than ever before.

Clearly, motorists, consumers and breathers of air in the southeast, northeast and west coast regions of the United States are just as entitled to the benefits of high performance, environmentally benign alcohol-blended fuels as are the good citizens of the Midwest where ethanol production and sales activity are currently concentrated.

CFC's commitment to ethanol production in the United States, Virgin Islands and perhaps elsewhere in the Caribbean stems from its need to have competitively priced alcohols in its southeastern marketing region totally outside the scope of the domestic ethanol industry.

Our efforts, in fact, complement and do not conflict with the domestic industry's effort to expand the national market.

The second principle; it is very critical that Congress does not act to impose origin restrictions on full-scale fermentation facilities. We have heard some discussion in certain quarters recently of socalled origin restrictions on sugar feedstocks for full-scale fermentation produced ethanol.

While this may be a legitimate approach at some point for dehydration only operations, it is also very, very clear that such restrictions are unnecessary and unwise in the case of full scale fermentation operations.

In CFC's case, for example, the full scale fermentation facility planned for completion in St. Croix at the former Martin Marietta Alumina site at the end of this year will require roughly 300,000 tons annually of sugar feedstock to meet its minimum alcohol needs in the southeast.

Our feedstock procurement strategy is targeted toward the purchase of sugarcane juice from nearby sugar production countries such as the Dominican Republic and St. Kitts, high test molasses from countries like Guatemala and Costa Rica and perhaps even raw sugar from a broader set of suppliers, if necessary, including countries like Brazil and even the Philippines.

However, it must be emphasized that sugar is an internationally fungible commodity. While it makes eminent good sense from a business point of view for CFC to procure its sugar feedstocks from CBI region neighboring countries due to transportation_logistics and other efficiencies, if the Congress were to restrict the flexibility of our sugar procurement strategy by imposing feedstock origin restrictions, the entire St. Croix facility's economic viability would be severely compromised by potential supply constraints, drought interruptions and noncompetitive pricing.

Wherever in the world fermentation projects like ours purchase their sugar from, insular possession and CBI beneficiary countries will benefit, because the increased utilization of sugar will firm prices for all producers.

At the same time, the objective of the CBERA will have been met because of the significant private sector investment in new manufacturing activity and new jobs.

Finally, we believe that it is obvious that full-scale fermentation satisfies even the strictest substantial transformation criteria and does not deserve to be treated in the same manner as dehydration. To summarize, Mr. Chairman, CFC respectfully urges that the committee recognize the compatibility of Caribbean and insular

possession ethanol production with the domestic industry's interests as well as other important energy, environmental and geopolitical objectives.

Our Southeastern markets complement and do not compete with U.S. grain-derived ethanol Midwestern markets. Our commitment to full-scale fermentation activity is strong and we believe consistent with the committee's expressed position in the report language to H.R. 3838 last December.

Thank you very much for this opportunity. [The prepared statement follows:]

STATEMENT OF David E. HALLBERG, VICE PRESIDENT, CHEMICAL FUELS CORP.

Mr. Chairman, we greatly appreciate this opportunity to make known our views concerning the importance of Congressional support for ethanol production in the Caribbean and insular areas. We recognize that this is a complex issue that involves a myriad of agricultural, energy, environmental, and trade/geopolitical considerations.

As we described in testimony before the Trade Subcommittee on February 7, the Chemical Fuels Corporation (CFC) is the largest formulator and marketer of alcohol blended fuels in the Southeastern U.S. Because U.S. producers of grain-derived ethanol require state tax support in addition to the federal tax support to be competitive, and because CFC operates in states which do not offer such state support, we have had no alternative but to look to foreign supplies of renewably-derived ethanol for the initial stages of our marketing program.

In its wisdom, the Congress has made commitments to two sets of interests that may at first glance appear to be in conflict, but in fact should be in harmony. On the one hand, in establishing the federal tax support for the fuel ethanol industry through 1992, the Congress stimulated an impressive new industry which responded by investing hundreds of millions of dollars in facilities which produce a high value liquid fuel and octane enhancer that substantially contributes to national agricultural, energy and environmental objectives.

On the other hand, by enacting the Caribbean Basin Economic Recovery Act (CBERA), the Congress-and especially this Committee-also made the necessary commitment to a critically important area of the world with respect to U.S. security interests. The CBERA was consciously designed to stimulate private sector investment in manufacturing enterprises that create employment and diversify economic activity. To achieve this, Congress afforded duty free access to eligible productsincluding ethanol-through 1994. The success of this program will, in the final analysis, depend heavily on the extent to which private sector investors perceive Congress' determination to avoid tampering with its commitment to the CBERA. In short, the Congressional commitment to the CBERA, just like its commitment to the domestic ethanol industry, must be upheld.

CFC acknowledges the Committee's interest in addressing the legitimate issues raised by dehydration of 190 proof ethanol under the "substantial transformation" rulings reaffirmed by the Customs Service. However, we strongly believe that there is a reasonable solution to this problem which can in fact benefit both the domestic ethanol industry and our Caribbean and insular territory commitments. I would like to submit the following principles that could be helpful in formulating a workable compromise:

(1) Congress intended the fuel ethanol industry to be national in scope.—In providing the federal tax support for fuel ethanol in the Energy Tax Act of 1978, Congress clearly intended that the program be broad-based, and national in scope. While recognizing the importance of the industry's value as a new outlet for surplus grain, the Congress also recognized that ethanol could be derived from a wide array of other renewable feedstocks, including sugar.

Even more importantly, ethanol's benefits go far beyond just its agricultural dimensions. Especially now after EPA's 91 percent reduction in lead-in-gasoline levels, the environmental and energy importance of alcohol blended fuels for the entire U.S. is greater than ever before. Clearly, motorists, consumers, and breathers of air in the Southeast, Northeast, and West Coast regions of the U.S. are just as entitled to the benefits of high performance, environmentally benign alcohol blended fuels as are the good citizens of the Midwest, where ethanol production and sales activity is currently concentrated.

CFC's commitment to ethanol production in the U.S. Virgin Islands, and perhaps elsewhere in the Caribbean, stems from its need to have competitively priced alcohols in its Southeastern marketing region totally outside the scope of the domestic ethanol industry. Our efforts in fact complement, not conflict with, the domestic industry's efforts.

(2) Congress should not impose "origin restrictions" on full-scale fermentation facilities.-There has been some discussion in certain quarters of imposing "origin requirements" on sugar feedstocks for full-scale fermentation-produced ethanol. While there may be some legitimacy in such an approach for dehydration-only operations, it is clear that such restrictions are both unnecessary and unwise in the case of fullscale fermentation operations. In CFC's case, for example, the full-scale fermentation facility planned for completion in St. Croix at the end of this year will require roughly 300,000 tons annually of sugar feedstock to meet its minimum alcohol needs in the Southeast. Our feedstock procurement strategy is targeted towards the purchase of sugar cane juice from nearby sugar production countries such as the Dominican Republic and St. Kitts, high test molasses from countries like Guatemala and Costa Rica, and perhaps even raw sugar from a broader set of suppliers, if necessary, including countries like Brazil and even the Philippines.

However, it must be emphasized that sugar is an internationally fungible commodity. While it makes eminent good sense from a business point of view for CFC to procure its sugar feedstocks from CBI region neighboring countries (due to transportation logistics and other efficiencies), if the Congress were to restrict the flexibility of our sugar procurement strategy by imposing feedstock origin restrictions, the entire St. Croix facility's economic viability would be severely compromised by potential supply constraints and non-competitive pricing.

Wherever in the world fermentation projects like ours purchase their sugar from, insular possession and CBI beneficiary countries will benefit, because the increased utilization of sugar will firm prices for all producers. At the same time, the objective of the CBERA will have been met because of the significant private sector investment in new manufacturing activity and new jobs. Finally, it is obvious that fullscale fermentation satisfies even the strictest substantial transformation criteria, and does not deserve to be treated in the same manner as dehydration.

To summarize, Mr. Chairman, CFC respectfully urges that the Committee recognize the compatibility of Caribbean and insular possession ethanol production with the domestic industry's interests, as well as other important energy, environmental, and geopolitical objectives. Our Southeastern Markets complement, not compete with, U.S. grain-derived ethanol Midwestern markets. Our commitment to full-scale fermentation activity is strong, and we believe consistent with the Committee's expressed position in the report language to H.R. 3838 last December.

Thank you for this opportunity to present our views on this important issue. Mr. ANTHONY. Thank you very much, Mr. Hallberg. We now look forward to hearing from the Honorable Antonio J. Colorado.

STATEMENT OF HON. ANTONIO J. COLORADO, ADMINISTRATOR OF THE ECONOMIC DEVELOPMENT ADMINISTRATION OF THE COMMONWEALTH OF PUERTO RICO

Mr. COLORADO. Thank you, sir. My name is Antonio J. Colorado, administrator of the Economic Development Administration of the Commonwealth of Puerto Rico, and I wish to thank the subcommittee for giving me the opportunity to testify today.

The Caribbean Basin Initiative represents a breakthrough for Puerto Rico to adopt and act upon specific plans for the redirection of our economy. Puerto Rico is the center of the Caribbean Basin in terms of technology, banking and finance, transportation, communications, and economic development experience.

In addition, its affinity in the areas of language, geography and culture make Puerto Rico strategically and ideally situated to greatly expand its commercial links to the countries of the region. As a consequence, we are working with the administration to further develop the Caribbean Basin Initiative within the broad parameters of the Caribbean Basin Economic Recovery Act.