EU revokes duty-free ethanol imports for Pakistan, fuel grade exempted

The EU scrapped duty-free imports for ethanol from Pakistan, its largest supplier, on June 19, as lawmakers aim to protect domestic producers from rising import competition.

The European Commission said in a statement June 20 that it had halted its zero-tariff policy for Pakistani supplies with immediate effect. New duties will only apply to non-fuel ethanol and remain in place for two years.

The decision will make Pakistan's non-fuel ethanol imports subject to the standard import duty of Eur102/cu m for denatured grades and Eur192/cu m for undenatured grades, aiming to bring supplies in line with market rates.

Fuel-grade ethanol with less than 0.3% water content can still enter duty-free, and supplies currently in transit will be exempt from new measures, the commission said.

Unlike other major suppliers, such as the US, Pakistan has benefited from preferential access to the EU market thanks to a development initiative by the bloc to support growth in emerging economies.

From 2014, the country began benefitting from duty-free trade under the Generalized System of Preferences Plus, which extended across a range of sectors, including agriculture and textiles.

With the program's support, Pakistan has since grown to become Europe's largest ethanol supplier, mostly through its trade of non-fuel grades.

Over 2021-2024, non-fuel ethanol imports grew by over 90%, the EU reported, reflecting a jump from around 376,000 mt to 726,000 mt.

Deliveries from Pakistan represented 27% of all non-fuel ethanol imports in 2024, according to EU customs data, trailed by the US with a 23% share. The remaining imports are sourced mostly from South American countries, such as Guatemala, Bolivia and Peru, which also benefit from lower duties.

Competitive threat

The EU policy decision responded to a joint appeal from France, Germany, Spain, Italy, Hungary and Poland in October 2024, which called for tougher policy protections to preserve their competitiveness.

An EU investigation found that imports from Pakistan had typically undercut domestic suppliers by around 25%, producing "serious disturbance" to the local market.

Responding to the move, traders in Europe said demand could pivot to other suppliers, such as South America, to retain a cost advantage.

In December 2024, the commission signed a controversial trade agreement with South America's Mercosur bloc -- including Argentina, Brazil, Paraguay, Uruguay, and Bolivia -- which would offer duty-free imports.

Under the agreement, the countries would benefit from duty-free imports for non-fuel ethanol for the chemical industry, capped at a 450,000 mt/year quota. However, the deal is still pending formal approvaland is expected to face strong opposition from countries like France due to concerns for their agricultural sectors.

The clampdown on flows from Pakistan could give an edge to US suppliers, which are already subject to tariffs. US imports were typically priced 35% below EU producers in 2024, roughly 15% below import prices from Pakistan, customs data showed.

European renewable ethanol association ePURE welcomed the decision as an "important step" for the EU, but expressed concerns over circumvention using the fuel ethanol exemption.

"Administrative slowness has only deepened the harm to European ethanol producers -- resulting in substantial loss of market share, capacity reductions, and the erosion of established client relationships," the association said in a statement.

Pakistan's response

The decision did not come as a surprise for many of Pakistan's producers, who are increasingly eyeing export opportunities in Asia and West Africa.

However, duty-free provisions for supplies already inbound for Europe could provide some breathing room before flows begin to react, sources said.

"This may not affect us immediately as most of the players have sold material for this quarter," a producer told Platts, part of S&P Global Commodity Insights. "Pakistan producers may wait to assess the impact before offering for Q3 or Q4."

A third trader agreed that it may take two to three weeks to see some movement in markets after producers decide to offer for Q3, but prices are expected to soften.

Platts last assessed ethanol FOB Karachi anhydrous grade (99%) at $604/cu m on June 16, with ethanol FOB Karachi extra neutral alcohol (96%) assessed at $632.20/cu m June 16.

For European fuel-grade ethanol, Platts assessed T2 ethanol at Eur582/cu m FOB Rotterdam on June 19.