US ethanol subsidies. Illegal export subsidy?

Chapter 10 of the book analyzes agricultural trade subsidies.  In general trade agreements under the WTO do not raise as many objections to production subsidies as they do to export subsidies (why?).  So which is this?  From today's Financial TImes 

The US pumps out a record 37m gallons of ethanol a day, easily surpassing rival Brazil’s sugar-based industry in output.

Producers are running out of places to put this ethanol. The US government mandates 12bn gallons in the fuel supply this year, but a decline in American driving and a 10 per cent cap on how much can be blended into motor fuel has created a glut.

“The domestic market here in the US is essentially saturated. We are looking for a home for the surplus,” says Geoff Cooper at the Renewable Fuels Association, a US trade group.

That home is increasingly abroad. US ethanol exports are more than double those of a year ago, totalling 251m gallons in the nine months through September, government trade data show. The surge comes as rising sugar prices and the real’s appreciation against the dollar made Brazil’s product more expensive.

The export trend puts a spotlight on the government support for ethanol that totalled $7.7bn in 2009, according to the International Energy Agency.

..use of the credit threatens to open a rift between the US and the much smaller European ethanol industry, echoing an earlier US-EU dispute over biodiesel.

...European government support to ethanol was $2.1bn in 2009, IEA said.

The US also ships ethanol to some major oil exporting countries including Saudi Arabia and the United Arab Emirates. Analysts say in many cases these exports are used as an additive to raise the quality of local petrol stocks.

US demand for ethanol could grow after the Environmental Protection Agency raised the blending cap to 15 per cent, for cars sold since 2007. But fuel retailers are reluctant to adopt the changes, and a coalition of food groups – concerned that ethanol production is driving up the corn price – last week sued to overturn the decision.

The US Department of Agriculture forecasts ethanol production will consume 4.8bn bushels, or 38 per cent, of the US’s 12.5bn bushel corn crop this year. Some residual grain will return to the food supply in the form of animal feed.

On the topic of farm subsidies this video of an exchange between a subsidized farmer and a CATO institute researcher (a libertarian think tank) is entertaining and worth watching as it brings out arguments from both sides.