Leibowitz on Trade: ITC Decisions on Russian Ferts, Brazilian CR Raise Eyebrows

This unanimous vote was unusual for three reasons:

• The ITC rarely votes unanimously against material injury or threat of injury in antidumping and countervailing duty investigations

• The agriculture industry pushed hard against the tariffs

• The Commission voted against duties against Russia, which is not in the good graces of the United States at this time

Downstream consuming industries are not often successful in challenging the injury phase of antidumping and countervailing duty investigations.

Antidumping and countervailing duty investigations require an affirmative determination by the Commerce Department of sales at less than “normal value” (antidumping) or subsidies (countervailing duties), and an affirmative injury finding by the ITC by three or more of the six commissioners. In virtually every case, dumping or subsidies are found by Commerce. The ITC votes in the negative somewhat more often, but still well under half the time. In quite a few cases, downstream industries urge the ITC to vote negative. They are rarely successful.

When the unusual happens, it is usually enlightening to look into the situation and draw lessons from it. So far, there is a lot we don’t know. But here is what we do know.

The leading domestic producer of urea ammonia fertilizers is CF Industries. That company has complained about imported fertilizer for four decades. Perhaps the ITC has heard this all before.

The ITC report has not yet been released, so the commissioners’ reasoning is not yet known. No point in speculating. The report will be available before the end of August. But the fact that the vote against duties was unanimous is already known.

Also last week, the ITC cast its votes in a five-year sunset review on imported cold-rolled flat steel from six countries. The Commission unanimously voted that revocation on the antidumping and countervailing duty orders on five of the six would “likely” lead to continuing or recurring injury. On the sixth country, Brazil, the vote was 3-2 against. The reasoning has not been released yet, but it is unusual for any sunset review vote to go negative on a 3-2 vote. The ITC normally has six commissioners, and a tie vote would continue the duties. The unusual odd number may have been the difference.

These cases do not evidence a change in attitude by Congress or the ITC itself toward tariffs in general or to antidumping and countervailing duties in particular as a result of this Commission vote. Politically, tariffs are very popular in Congress, as is the notion that the US can make everything we need. We can’t, and we shouldn’t. But for now, a negative ITC vote will take a bit of pluck and a good case on the merits to buck that trend.

In the fertilizer case, the users of UAN fertilizer (US farmers) fought hard against the new tariffs. Agriculture has suffered heavily from inflation and supply chain difficulties. CF Industries had a relatively weak case that duties were needed to prevent heavy losses. But the law does not require heavy losses to prove “material injury,” which basically means that the harm is not merely inconsequential. Big agriculture lobbied hard against this one because inflation would run higher for them if high antidumping and countervailing duties would cause imports to be restricted, prompting CF and other domestic producers to raise prices.

In the cold-rolled steel case, the negative vote on Brazil – and only Brazil – was interesting because the other five countries involved in the case (China, India, Japan, South Korea, and the United Kingdom) were not absolved. Why Brazil? The antidumping duties on Brazilian cold-rolled steel were not insignificant (about 35%).

Another development in the last year or so is the Commerce Department’s decision to increase antidumping duties on products that are also subject to Section 232 duties on steel and aluminum.  For example, Section 232 duties of 25% are imposed on imported steel from most countries. Antidumping duties are calculated based on the difference between “normal value” (the price of comparable products in the home market of the exporter) and the “export price” (the price to a US customer). For imported products subject to antidumping duties, Commerce has started to deduct from the export price the 25% duty.

Suppose cold-rolled steel is invoiced to a US buyer at $1,100 per ton ($55 per cwt). The Section 232 duty is 25% of that amount, or $225 per ton, which the US importer pays. If the domestic selling price in the home market is $1,000 per ton, the dumping “margin” would be -$100 per ton (less than zero). But deducting the Section 232 duty would result in a dumping margin of +$125 per ton. (That’s the difference between $1,000 per ton for the home market price and the adjusted export price.) So, instead of paying a duty of $225 per ton, the total duty attributable to Section 232 increases to $350 per ton. The Court of International Trade has held that Commerce is authorized to deduct Section 232 duties from the export price.

But Brazilian cold-rolled steel will be not be affected by the sunset review determination of the ITC. Brazilian steel is not subject to Section 232 duties—only quotas. If this were a diplomatic “gift” to Brazil, it is not particularly valuable, because the Section 232 quotas will still inhibit Brazilian sales. And, if it were a “gift,” why were there still two votes to continue the antidumping duties? Very interesting. I look forward to seeing the Commission’s rationale.

Lewis Leibowitz

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