This analysis (see below) by DTN ethanol newsletter hits the nail on the head. Bush wants to diversify U.S. and global motor fuel markets away from petroleum. Brazil alone has the  land area suitable for ramping up global biofuel production without decimating forests and wildlife habitat. Brazilian ethanol is made from sugarcane and is less expensive than U.S. corn-based ethanol. Bush has proposed a 35 billion biofuels mandate. Brazil could supply a substantial portion of this if–but only if–Congress dismantles the 54-cent per gallon tariff on ethanol imports. Brazilian President Lula will press Bush to advocate tariff repeal. But the U.S. ethanol (aka corn) lobby will have none of it. Call me a cynic, but I don’t see much hope of a U.S.-Brazil biofuels “partnership.”
Bush, Lula to Discuss Fuel Cooperation  03/06/2007 11:24:33 AM

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BRASILIA (Dow Jones)–After years of hesitant relations obstructed by nagging differences over trade and the U.S.’s involvement in Iraq, the U.S. and Brazil appear to have finally come up with an agenda that both sides can pursue.

U.S. President George Bush and Brazil’s Luiz Inacio Lula da Silva will meet in Sao Paulo Friday to talk about world trade issues, global security, and a topic that may dovetail both those issues: fuels cooperation.

While it is only one stop on Bush’s five-country Latin American tour, the visit has generated high expectations in Brazil. Analysts say it offers a chance for the U.S. to lay the ground-work for better relations if it is treated as more than just a good photo opportunity.

“You can’t ignore a country that represents more than 180 million people and half the (South American) continent, and therefore the U.S. needs to cultivate its relations with Brazil carefully,” said Riordan Roett, Director of Western Hemisphere and Latin American Studies at Johns Hopkins University. “If the White House can finally think about continuity in policy, that would be very, very helpful.”

The agenda of the meeting is still open, and diplomats said a number of subjects could be addressed, including security cooperation in Haiti and other global hotspots, Brazil’s ambitions for a seat on the United Nations Security Council, in addition to contentious World Trade Organization talks.

According to local press reports, Bush recently told the Brazilian Ambassador to Washington, Antonio Patriota, that “the time is now” for advancing the WTO’s Doha round.

Realistically, however, not many immediate advances are expected from this week’s talks, as the Bush administration is serving out its final two years with both the House and Senate controlled by Democrats, and as the two countries’ domestic agendas on broader trade and investment issues are still far from aligned.

“Progress on the Doha round or any free trade agreement is out of the question because of the agricultural subsidies in the U.S. and Europe, and the fact that Brazil and others aren’t going to give way on intellectual property rights and investment issues that the U.S. and the E.U. want as a counterpoint,” noted Roett.

Still, for many the bilateral talks are seen as a possible starting point for strengthened future ties.

Brazil’s left-leaning government has increasingly downplayed insinuations that its policy is anti-American amid hopes to use stable relations and influence with the U.S. to cement a position as the regional spokesman on the world stage.

“There’s no logical reason commercially or diplomatically that Brazil should play up its differences with the U.S.,” argued one Brazilian foreign ministry official. He noted the U.S. has direct investments of more than $34 billion in Brazil, while Brazil’s investment in the U.S. has grown to more than $2 billion in recent years.

Meanwhile, the big hope at the meeting for both countries is possible cooperation on ethanol and biofuels.

The U.S. and Brazil are the world’s number one and number two producers of such fuels, respectively, accounting for 70 percent of global supplies. In seeking alternative uses for its traditional sugar crop, Brazil has developed special expertise in producing cane-based ethanol and is actively working on advancing a local and even international bio-diesel market. As a result, more than 75 percent new vehicles now sold in Brazil are “flex-fuel” models that can run either on gasoline or bio-fuel alternatives.

After Bush in his State of the Union address in January launched the goal of slashing U.S. gasoline consumption by 20 percent through 2017 the mood in Brazil’s ethanol industry turned from cautiously optimistic to near euphoric.

“For Brazil, it’s fantastic to have the U.S. on board promoting ethanol,” noted William Burnquist, a director of the Center for Cane Technology in Sao Paulo state. “This will help make ethanol a world commodity.”

That appears to be the aim.

As part of the proposed program, U.S. and Brazilian officials have already begun work on harmonizing standards for production among the varieties of cane-based and corn-based ethanol mixtures available in both countries.

Bush’s initiative would require about 35 billion gallons of additional biofuels to replace fossil fuel consumption. Technicians note, however, that at current rates of production from domestic sources such as corn-based ethanol, the program might cause fuel shortages in the U.S.

That, analysts say, is where Brazil comes in.

In 2006, Brazil sold more than half of its 3.4 billion liters of exported ethanol to the U.S. both directly and via the Caribbean. But according to a study recently published by Brazil’s Unicamp University in the state of Sao Paulo, Brazil alone could replace as much as 10 percent of the world’s gasoline supply with sugar-cane based ethanol over the next 20 years. The ambitious target, which would raise exports to as much as 200 billion liters from 3.4 billion liters currently, would require new investments of some $9.5 billion annually to improve infrastructure. It would also require an increase in Brazil’s land commitment for the cane crop to 30 million hectares from about 5.4 million hectares currently.

Agronomists point out, however, that Brazil currently has as many as 200 million hectares of idle pasture land available for planting, none of which is located in the country’s sensitive Amazon forest region.

Aside from helping reduce U.S. dependence on foreign oil and creating jobs in Brazil, a U.S.-Brazil fuels pact could have positive regional implications as well, by providing an agricultural export crop and industry for other developing countries in Latin America and the Caribbean.

Additionally, observers note it may also serve as a convenient way to curb the ambitions of Hugo Chavez, president of oil-rich Venezuela who has tried to upstage Brazil regionally as he works to undermine U.S. policy in the region, particularly on trade. But to make the cooperation plan viable, Brazilian ethanol producers are angling for the U.S. to remove a $0.54 per gallon U.S. ethanol duty on direct imports. Proponents of the tariff reduction, including Lula , argue it would alleviate pressure on U.S. food and fuel prices while also boosting Brazilian economic development and investment capacity.

“The high tariff that the U.S. imposes on Brazilian ethanol just doesn’t make sense,” said Lula Monday in his weekly national radio address.

The proposal, however, could be a hard sell to farm-state allies in the U.S. Congress, who say they’re not keen on accommodating Brazil until it matches tough U.S. environmental standards and makes broader trade concessions in other areas.

“As far as offering any hope (for Brazil), they’re not going to get any from me,” said Collin Peterson, Chairman of the U.S. House Agriculture Committee in recent teleconference with journalists.

Peterson said he would rather see consumers pay slightly more for fuel and food while U.S. agriculture raises its output capacity than import ethanol that might provide competition for U.S. farmers.

“We’ll have plenty of food in the U.S and we’ll have plenty of ethanol,” he said. “If there’s a concern about (fuel supply elsewhere) in the world, maybe Brazil should be focused on that rather than on selling us ethanol that we don’t need.”

Given that type of sentiment, Bush and Lula may need to hold extensive negotiations to come up with a formula that could be agreeable to both sides.

But so far, the interest in the matter appears to be genuine.

As a follow-up to this week’s meeting, the two presidents have scheduled a continuation of this week’s meeting, the two presidents have scheduled a continuation of the bilateral talks at Camp David at the end of this month.