With Trade, Make It Free By Ending All the Gaming of the Trade System
Chinatopix via AP
With Trade, Make It Free By Ending All the Gaming of the Trade System
Chinatopix via AP
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The U.S. International Trade Commission (USITC) is a self-described independent, nonpartisan, quasi-judicial federal agency, that investigates whether alleged unfair trade practices harm our domestic industries. If a U.S. company requests an investigation, and the ITC, in cooperation with the International Trade Administration of the U.S. Department of Commerce, finds a triggering cause for the plaintiff, they can take punitive action in the form of new tariffs placed on the imported goods in question. 

Boring government stuff, right? 

One big problem is that trade tariffs, which are taxes, and countervailing duties (also taxes) are not penalties or fees placed on countries exporting to the U.S., but rather are taxes on specific goods coming into U.S. markets that ultimately are paid for by American consumers.  Likewise, these costs increase prices for goods and services for domestic end-users like our farmers and manufacturers who depend on imported materials to produce their final products.   

The current review process also is becoming increasingly vulnerable to misuse by domestic commercial interests that seek undeserved market advantages through government power – crony capitalism, it’s called. And this is further enabled by a technocratic bureaucracy that ignores critical cost impacts to consumers and affected end-user industries here at home. 

One potential example is a recent case filed by the Mosaic Company, a global corporation based in Florida that is by far the dominant producer of potash and phosphate fertilizers in the U.S.  In June, the company filed petitions with the Department of Commerce the USITC requesting an investigation into imports of fertilizers from Morocco and Russia. 

Curiously, Mosaic omitted from its filings other phosphate-rich countries like BrazilChina, and Saudi Arabia, where the company has its own significant operations, investments or partnerships.  

Claims that Mosaic has been injured by imports from these specific countries seems like a stretch when one considers that at that time 73% of U.S. originated phosphate was already produced by Mosaic, and that domestic supply is normally insufficient to meet U.S. demand.  Costly new tariffs would be a sure-fire way to drive up the price of needed imports, giving Mosaic not only a more dominant market position, but potentially monopoly-like power to increase its own prices. 

And the impact of any government measures wouldn’t just arrive at the end of an investigation.  That’s because the ITC can impose retroactive duties and, if they vote to proceed with an initial investigation, markets take notice and prices usually rise in anticipation of punitive measures being fully applied past and present.  

So, what happened after the ITC voted on August 7th to proceed with its investigation? The global fertilizer market reacted as many in U.S. farm communities feared, and Mosaic even acknowledged later to shareholders

Morocco, Russia and others curtailed exports of phosphate to the U.S. in favor of other markets.  In tandem, many U.S. agriculture stakeholders – those that could afford it – likely stockpiled products at then current prices to hedge against future price risks.   

Accordingly, soon after this process began prices for phosphate in the U.S. not so mysteriously skyrocketed – more than 42 percent by the third quarter of this year after the original CVD complaint was filed in June.  Not a bad outcome for Mosaic considering it now controls upwards of 90% of the current U.S. phosphate supply market

The stock market also reacted. Mosaic’s stock price first jumped by 8% when the USITC published its notice of their petition and then subsequently soared (50%). when the Commission accepted their request to investigate. All told, since the initial filing the company’s stock is now up over 80% even though the relative demand for fertilizer needed to produce America’s food supply remained the same. 

Considering the increased costs (resulting duties of as much as 74%) would impose on U.S. farmers, it’s no wonder key agriculture leaders such as the American Farm Bureau Federation, the American Cotton Council and others urged the Department of Commerce to reject Mosaic’s petition.  Members of Congress also did the same with U.S. Senators Joni Ernst (R-IA), Jerry Moran (R-KS) and other farm state leaders requesting any proceedings be dropped before more harm was placed on American farm families and consumers.  

Yet, unelected federal bureaucrats proved once again they are not accountable to anyone – including our elected officials, farmers, manufacturers, and consumers – by announcing last week that they plan to still pursue potential tariffs.  Whatever technical causes they may find, and whatever penalties they ultimately assess, they will come well after signals have been sent to the global market and U.S. farmers feel the brunt of sky-high cost increases.   

Outside of needed political intervention in this particular situation, Washington policymakers should really consider trade policy reforms such as requiring cost-benefit analysis and inter-agency reviews to measure the impacts of such duties or tariffs on consumers and domestic end-users moving forward. 

It’s more likely than not that if the U.S. Department of Agriculture (USDA) was consulted they would have provided the full context of the consequences and costs to American farmers.  Moreover, if there were a formal public review and comment period as required in other regulatory rulemaking procedures, farm and food groups would have been afforded the chance to provide their critical input.  

Furthermore, there should be penalties on those who file claims found to be frivolous or intended to gain unjustifiable government advantage in the marketplace. Hopefully, that would deter bad actors from attempting to game the system in the future. Beyond basic business ethics, some may question why not file a petition if you are almost certain to get 6 to 10 months of artificial price support above your competitors regardless of whether your case has merit or not if its legal to do so?   

At a minimum, regulators must be able to clearly distinguish between legitimate petitions due to wrongful foreign trade practices inflicting widespread harm with those that are based on self-interest and engineered through the misuse government bureaucracies. Such safeguards certainly do exist at present.    

Steve Forbes is Chairman and Editor-in-Chief of Forbes Media. 

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