March, 2001: Cover Story

By Greg Rushford
Published in the Rushford Report

As if American farmers didn’t already have enough to worry about on the international trade front, a new economic pestilence has hit our fair land.

This blight doesn’t come from the usual foreign-grown suspects like European export subsidies that distort world markets, or even new fears of mad cow disease. Much to the farmers’ surprise, the threat comes from within.

No, the culprit isn’t the weather: It’s the U.S. antidumping laws, which have a built-in anti-consumer bias. Farmers are also outraged that U.S. Department of Commerce officials —who are, after all, paid with tax dollars — have made matters (unnecessarily) worse. Until it happened to them, these citizens had been unaware how the bureaucrats play bureaucratic games to jigger cost estimates to make it look like foreigners are engaged in “unfair dumping,” even when other data would show that they aren’t. Farmers I have spoken with say that they already had enough government-inspired problems to deal with before the antidumping police came into their lives.

Because of a successful antidumping action brought in 1999 by a group of beleaguered U.S. producers of a vital fertilizer called ammonium nitrate — farmers need this stuff to grow crops — imports from Russia have pretty much dried up. Imports of ammonium nitrate from Ukraine are now likely to suffer the same fate, as U.S. ammonium nitrate producers have also filed an antidumping case against that former Soviet Republic. With tighter supplies, prices have naturally shot up; that’s the purpose of antidumping actions. Farmers say they are being squeezed, alas, just in time for Spring Planting.

Actually, nobody is happy. While the U.S. ammonium nitrate producers have been happy to use U.S. trade laws to drive up prices for their customers, the same producers are screaming that their own costs have gone through the roof. Ammonium nitrate is made from natural gas.

Because domestic demand has outstripped supply, prices of natural gas skyrocketed last year from roughly $2.30 per million British thermal units to about $10. Some producers have even found it more profitable on occasion to sell their natural gas — bought at hedged-price contracts on the futures market — for a windfall, rather than turn it into ammonium nitrate (although they insist that there is still plenty of ammonium nitrate around).

The U.S. producers and their 450-500 employees — mainly located in Alabama, Arkansas, Florida and Mississippi — call themselves the Committee for Fair Ammonium Nitrate Trade, or COFANT. There is no doubt that COFANT members have been hit hard by foreign competition (and probably much harder by the volatile natural gas market). True, the big picture doesn’t look so bad to outsiders, as the foreign competition has only reduced the Americans’ share of the domestic ammonium nitrate market to about 80 percent, down from 83 percent a couple of years ago. But up close, the competition hurts. Two of the U.S. producers that brought the antidumping action against Russia last year are now out of the business; COFANT’s coalition started with seven companies, and is now down to four.

But the biggest losers look to be U.S. farmers and fertilizer retailers. These consumers really need ammonium nitrate at affordable prices, and they are now scrambling. To them, the economic logic of using the antidumping laws to limit imports at a time of high demand and domestic shortage simply doesn’t make sense. As Dartmouth economics professor Douglas Irwin puts it, “Why are 500 jobs in the ammonium nitrate industry more important than thousands of jobs in the farm sector?”

Take Jerry Cooper, who runs a farm supply business in south central Missouri and also grows cattle. He says that he can’t get enough ammonium nitrate to put out in his fields to grow grass, from which he would make the hay to feed his cattle. Because of the tight supply and high prices for ammonium nitrate — $50-$75 higher per ton than it was at Spring planting time last year — Cooper says he is in a real bind.

“We will have to cut back on the amount per acre we fertilize, which in turn increases our costs and decreases our yield,” Cooper explains. “We will have to sell some cattle, and not run as many cattle per acre as we normally do,” he adds. If that wasn’t bad enough for the health of his ranching operations, Cooper says that his farm supply business also is being hit with a “double whammy,” as customers who want to buy ammonium nitrate to fertilize corn are also caught. “This is a serious situation for us,” Cooper declares.

Cooper isn’t alone. Pam Dixon, of Dixon Farm Supply in Oklahoma, is in the same bind, as is Cliff Daugherty, a farm supplier in Iowa. “The dumping suits have shortened my supply capabilities,” says Daugherty. “They refuse to let us go to the world market to buy inputs.”

Cooper, Dixon, Daugherty, and their counterparts who are scattered from Texas to Georgia and California — joined by importers like ConAgra and Transammonia — have formed their own consumers group to fight back. The Committee for a Competitive AN Market has been busy taking its case to lawmakers, with some success. Reps. Marion Berry (D-Ark) and Jo Ann Emerson (R-Mo.) have rounded up 15 of their colleagues to write to Secretary of Commerce Don Evans and to Agriculture Secretary Ann Veneman. Congresswoman Emerson, a member of the Agriculture Appropriations Subcommittee, has also put it directly to Stephen Koplan, who chairs the International Trade Commission.

“You should know that this investigation [the antidumping case against Ukraine] may be very harmful to America’s family farmers,” Emerson asserted to Koplan in a January 10 letter. “How can the federal government justify limiting imports of ammonium nitrate when there exists such a pronounced scarcity?”

But officials like Koplan don’t have to justify such actions. This is because the U.S. Congress has written the antidumping laws to favor the interests of petitioning domestic industries that seek trade relief. These laws basically direct U.S. antidumping authorities to disregard the interests of American consumers. All that the Commerce Department has to do is crunch the numbers to determine whether foreigners are “dumping” their products in U.S. markets at below “fair” prices. The ITC looks at the petitioning American industry, to see if it has been “injured” by the low-priced foreign competition. Nobody looks out for consumers, who don’t have standing. This is true even when there are far more consumers than there are petitioners who filed the antidumping case.

“There ought to be a public-interest test built into the law to give the feds the authority to dismiss cases that would clearly harm the economy,” says Washington trade consultant Laura Baughman, who is spearheading the pro-consumer farm coalition.

But there isn’t.

Of course, the U.S. producers who brought the case aren’t guilty of anything except pursuing perfectly legal remedies to advance their own interests. (The domestic petitioners are represented by Valerie Slater and Karen Bland Toliver, of Akin, Gump, Strauss, Hauer & Feld.) When the Committee for Fair Ammonium Nitrate filed the antidumping action against Russia, six of its original seven members reported losing money, one of which had already filed for Chapter 11 bankruptcy. In 1999, the U.S. share of the ammonium nitrate market was worth about $209 million; it had been nearly $270 million two years previously. Prices in 1999 were down some 32 percent since 1997, and the U.S. producers were competing with foreign imports that were priced more than 15 percent lower. They vehemently insisted that the foreigners were ruining the market with “artificial” pricing.

To restore the proverbial “level playing field” for “fair” competition, Commerce Department officials calculated that the Russians were underselling by 254 percent.

Were the foreigners really “dumping?”

As Bill Clinton would say, that depends upon what you mean by dumping.

Congressional supporters of antidumping laws are (blissfully) unaware of the games that Commerce bureaucrats play to find foreigners guilty of dumping. It is a safe bet that few if any lawmakers know what Commerce did to determine that the Russians were dumping ammonium nitrate in U.S. markets at a margin of 254 percent.

First, because Russia is a “non market” economy, Commerce selected a surrogate country of comparable economic development from which to calculate the costs of Russian ammonium nitrate production. This business of searching for surrogates is usually where serious mischief comes into these cases.

On behalf of the U.S. petitioners, the Akin, Gump lawyers helpfully suggested Poland as the surrogate. Advocates for a Russian respondent firm named Nevinka — White & Case’s Walter Spak, Robert Gosselink, and Lynn Fabrizio — argued that Venezuela would be a more appropriate surrogate.

“[P]oland is not a major producer of natural gas,” from which ammonium nitrate is made, the White & Case team pointed out in a submission to Commerce. “In fact, Poland obtains the majority of its natural gas from Russia, a non-market economy.” Venezuela is a major producer of natural gas.

Anyone who knows the mentality of the U.S. Department of Commerce knows why Commerce went ahead and picked Poland and not Venezuela, even though Poland buys its natural gas from Russia. If you crunch the numbers the Polish way, Russia is “dumping” to the tune of 264 percent. If you crunch the same numbers using Venezuela as the surrogate, the Russians are not dumping. This is what Commerce does when “non-market” countries like the former Soviet bloc and China are involved: find surrogates to punish foreigners, not surrogates to clear them.

Hoping to avoid being wiped out of U.S. markets totally, thanks to the 254 percent antidumping tariff, the Russian Ministry of Trade entered into a so-called “suspension agreement” with Commerce in May, 2000. Under the terms of the agreement, the Russians agreed not to sell any ammonium nitrate to Americans below a “floor price” of $85 a ton. The Russians also agreed to a quota limiting their sales to the United States of 100,000 metric tons in 2001.

This kind of deal — when it is not done by governments — is called price fixing. Civilians can go to jail for such schemes. And this price-fixing scheme didn’t plug the dike, as the Ukrainians rushed in to take the Russians’ places.

Ukrainian exports, which had been zero in 1999, shot up to 155,000 short tons in the first six months of 2000, thus inspiring round two of the antidumping case.

This is the economic blight that the U.S. government has visited on farmers and retailers like Jerry Cooper, Pam Dixon, and Cliff Daugherty. Talk about unfair.

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