While the U.S. International Trade Commission issued its four-to-one vote in favor of The Mosaic Co.’s petition for countervailing duties (CVD) against phosphate imports from Morocco and Russia on March 11 (GM March 12, p. 1), it just recently released the official decision and dissent. Chair Jason Kearns, Vice Chair Randolph Stayin, and Commissioners Rhonda Schmidtlein and Amy Karpel voted in the affirmative. Commissioner David Johanson voted in the negative.
The majority decision honed in on the actual number of imports during the period of inquiry (POI) and said that the presence of other economic factors, such demand and management decisions by domestic producers, does not compel a negative determination. It said dumping itself does not have to be the sole or principal cause of the injury.
The majority noted that the U.S. market experienced unusually wet weather conditions that impacted three consecutive planting seasons beginning in the fall of 2018. Consequently, crop planting fell and U.S. demand for phosphate fertilizer declined in 2019, though U.S. demand did rebound in interim 2020 with increased crop plantings.
The majority also acknowledged that both Mosaic and Nutrien Ltd. idled major phosphate production during this period. While respondents said this opened a “gaping hole,” for imports, the decision noted Mosaic’s argument that while the idling of its Plant City plant resulted in 700,000 st of reduced supply to the U.S. market between 2017-2018, subject imports increased by a greater amount – more than 1 million st during this time. It also cited Mosaic’s claim that despite “Black Swan” weather conditions in late 2018 into 2019, imports remained at elevated levels in 2019.
The majority said subject imports from Morocco and Russia rose 37.4 percent between 2017 and 2019.
“We find that the volume of cumulated imports and the increase in that volume were significant in absolute terms and relative to apparent consumption in the United States during the period of the investigation,” said the majority decision.
“Notwithstanding that some purchasers were unable to obtain supply from Mosaic at times during the POI, we find that the record as a whole shows that subject imports contributed significantly to oversupply conditions in a declining market and had significant price-depressing effects on prices in the U.S. market in 2019.”
Despite arguments of declines in global prices and U.S. demand, the majority said these do not negate the significant role that the subject imports played in depressing domestic prices. Moreover, it said in 2019, as subject imports remained at elevated levels in an oversupplied and declining market, U.S. prices were lower than global prices.
“Although the domestic industry attempted to offset the collapse in U.S. prices by idling capacity and curtailing production, the record as a whole indicates that subject imports contributed significantly to the market imbalance between supply and demand that occurred in the latter half of the POI and … depressed prices to a significant degree.”
The decision said subject imports poured into the U.S. during the POI, gaining market share, forcing the domestic industry to reduce prices, and causing revenues to be lower than they would have been otherwise.
The majority also noted that rather than repositioning their overhang of imports, importers opted to simply import more product. It also said that some of them were contractually obligated to import more tons into an oversupplied market.
The majority also rejected respondent claims that Mosaic favored exports over the domestic market, noting at once the subject imports declined after the CVD petition was filed in June 2020, that the U.S. industry increased production, and U.S. shipments and diverted exports to make more material available for the U.S. market.
ITC Commissioner David Johanson dissented from the majority decision, saying Moroccan and Russian imports were pulled into the U.S. market by a supply shortage that was intentionally created and recognized by the domestic industry.
“When Mosaic announced its intention to idle Plant City in late 2017 and Nutrien announced the closure of its Redwater facility in early 2018, they did so fully expecting that the U.S. market would need more imports to fill the supply gap, a gap only widened by the domestic industry’s refusal to supply major U.S. purchasers and its prioritization of exports,” wrote Johanson.
“U.S. purchasers immediately scrambled to secure volume from alternative sources of supply, including subject imports, in advance of the closures coming into effect, without ever exceeding the supply gap created by the domestic industry during the POI,” he added.
While the majority opinion stressed the volume of imports themselves, Johanson said the imports must be considered in the context of relevant market conditions.
“This is not a case of surging imports out to take domestic market share. In my view, this is a case of imports having been pulled into the market due to unique supply conditions created by the domestic industry. This is an unusual case in that subject imports were not simply pulled into the U.S. market but were invited by the domestic industry,” Johanson continued.
“So we gave up 1 million mt (1.1 million short tons) of market here in the U.S. intentionally,” he quoted Mosaic CEO and President Joc O’Rourke as saying on March 28, 2019 at the company’s Analyst Day. Johanson noted that some 16 out of 28 purchasers surveyed by ITC reported experiencing supply constraints during the POI, with several noting specifically that Mosaic and other domestic producers refused, declined, or were unable to supply fertilizer products.
Gavilon, EuroChem, ADM, Koch, Heartland, and others came forward during the investigation process to say Mosaic refused to supply them with fertilizer. The Plant City idling itself cost CHS Inc. some 200,000 st and Gavilon 100,000 st, according to the record.
Johanson also said the data collected by ITC did not support the claim of significant underselling by importers. In fact, he said it showed the imports oversold in 80 percent of the cases.
“I decline to blame the effects of bad weather and demand decline on subject imports,” he said, “which are in the market in the first place filling a supply gap of the domestic industry’s making. Any declines in domestic producers’ prices on this record are not indicative of price depression attributable to subject imports.”
Contrary to the majority decision, Johanson’s view was that import volumes did not exceed the supply deficit they were pulled into the market to fill. He also argued that Mosaic saw the U.S. market as limited and preferred a growing export market, such as Brazil. He added that Mosaic had invested billions of dollars in facilities in Brazil, Peru, and Saudi Arabia to serve the U.S. and global markets.
In the meantime, conservative think tank The Heritage Foundation called the CVD duties a “fertilizer tax,” and said they will likely drive up food prices. “Congress and the Biden administration should move away from policies that increase government intervention that hinders agricultural trade,” said the group in a commentary earlier this month. “Americans need policymakers to increase freedom when it comes to agricultural trade. Removing these duties would be an important step in that direction.”
Several farm state GOP Congressmen lobbied against the CVD decision, with Ohio Democrat Tim Ryan later making it a bipartisan effort. Republican Congressmen from phosphate-producing states of Florida and Idaho, including Sen. Marco Rubio, lobbied for the CVD action.