Given U.S. government mandates and subsidies, ethanol production has grown significantly since 2000. Most of the ethanol used in the US is from domestically produced corn, however the US has been importing relatively small amounts of sugar based ethanol from countries in South and Central America and the Caribbean over the past few years. The key reason why the import of ethanol has played a minor role in the US market is a tariff on imported ethanol. Under Caribbean Basin Initiative (CBI), ethanol that is produced in the CBI and CAFTA-DR countries can be imported duty free into the US. Therefore several countries have set up dehydration plants in the CBI and CAFTA-DR countries to convert hydrous ethanol (“wet ethanol”) from Brazil into dehydrated ethanol, which is then exported duty-free to the US. This study examines the effects that CAFTA-DR might have on the ethanol production and economies of the CAFTA-DR and CBI countries.