December 20, 2021

By Michelle Pelletier Marshall, Oilseed & Grain Media

At the seventh annual Organic & Non-GMO Forum, held in Minneapolis December 1-2, Dan Ujczo, an attorney leading the Organic Soybean Processors of America (OSPA) case at the International Trade Commission (ITC) and the Department of Commerce, spoke to the anti-dumping and countervailing duties (AD/CVD) investigation into organic soybean meal from India. In this very popular session, Ujzco also addressed the next steps in the investigation and the potential penalties for parties who attempt to circumvent Commerce’s orders. 

Here are the highlights of Ujczo’s presentation:

As we go into the new year, we’ve certainly come from an extraordinary year, a disruptive year in all of the organic markets and markets across the board. We’re all trying to figure out where things are going. But 2022 is going to be, in many cases, a decisive year for what’s happening in organic soybean meal. My task today is to talk a little bit about the petition filed by the Organic Soybean Processors of America (OSPA) challenging the unfair trade practices of Indian organic soybean meal imported into the United States. I’ll talk mostly about what this is, how we got here, where we are, and where we’re going. But it’s very important at the beginning to say what this isn’t. This is not a lawsuit. And most importantly, there’s no big check. If somebody wins in this case, there’s no money going to OSPA members or anything like this. What this is is a petition. It’s an ask – this is a statute. If U.S. companies feel that countries around the world aren’t playing by the rules, you can ask the U.S. government to launch an investigation. And then from that point forward, the U.S. government starts looking at what the rules of the game are, and looking at what’s going on overseas.

The two big rules of the game are number one, countries around the world have agreed to not subsidize products. So when you’re talking about subsidizing products, and when it’s found to be a subsidy, the U.S. government can come in and put on what’s called a countervailing duty, or CVD, to level the playing field. The second is that there’s no dumping. Dumping is basically selling a product at less than its fair market value. If it’s found to be sold at less than its fair market value, then there’s an anti-dumping duty, again, meant to level the playing field. Dumping gets a little bit tricky because it is typically when something is sold at less than its cost. That’s the China model. China can subsidize something, sell it at less than cost. But typically, what we look at is what it’s being sold at in its home market.

I’ll be diplomatic here, organic soybean meal in India, let’s just say it’s opaque. There’s a veil on how that pricing system works. The reality is that we really don’t know what the home market price is, the fair price in India. But the bottom line is if folks don’t play by the rules, there can be these offsets. And that’s really what OSPA has done. There are three government agencies involved: the U.S. Department of Commerce, as that’s who you petition; the International Trade Association, and the U.S. Customs & Border Protection.

The Commerce Department is there to talk to the industry OSPA members, and scrutinize to make sure that there’s actually something here that’s called initiation. Then what the Commerce Department does after that is they start the investigation, and that’s what we’ve just finished. What happens now is a deep dive into the information. So by the end, it’ll be about mid-March, Commerce will come out with its final determination.

As for the International Trade Commission (ITC), this is an independent kind of quasi-judicial agency. So if the President ever wants to know what’s going on in the market, they ask the ITC of Congress to do a report and they make sure that the U.S. industry that filed the petition has actually suffered injury, as measured by lost profits, lost market capacity, etc. They also do an assessment of the industry. Some of you likely got questionnaires from the ITC last April, because what they’re doing is they’re pulling together the data and their goal is to make sure that the U.S. companies that have brought this petition have actually been injured, so that it’s not brought by people that are just trying to seek a market advantage or by industries that are unrelated.

So we filed a petition at the end of March, Commerce initiated, and the ITC unanimously found injury. Then at the end of the spring, we’ll be at the ITC again and then there’s an enforcement period. And if you don’t listen to another thing I say today, here’s the tricky part of this, the third agency is U.S. Customs and Border Protection (CBP).

What CBP does is once these orders are out and duties are in place, they collect. So now anybody that’s bringing in organic soybean meal from India, right now has to pay and put on duties. But the other thing CBP does is they do not liquidate the entries. What does that mean? Typically, when you’re bringing something into a port of entry, you pay a duty, that’s actually a temporary payment most of the time. The CBP has 300 days to liquidate or finalize that entry. So a little bit shy of a year, they can go back and look at it and say, “Hey, you owe us a little bit more.” And that usually happens behind the scenes. So if you’re buying organic soybean meal from India right now, those prices can go up, and in 18 months, 24, maybe even 36 months from now, you can get a bill from U.S. customs and saying, “This is what the final duties are.” If there’s any message to take away, don’t get hooked on the numbers that you’re seeing now. They may move up, they may move down, and they’re going to be around for a while and subject to change.

Alright, so how did we get here? Several years ago, I got a call from some folks that I knew in government who said, “Hey, there’s some organic processors running around Washington and elsewhere talking about what India is doing. India’s up to its old tricks.” Everybody knows that China, India, Russia, and Brazil, frankly, don’t play by the rules most of the time. China doesn’t care. They just do what they want. India at least tries to look like they’re playing by the rules, then they get caught. Then they launch a new program. And this is the game of whack a mole that we play.

The Commerce Department has multiple cases with India looking at these very programs where they have repeatedly said these violate the trade rules. And so I met with Jeff Simmons of Simmons Grains back home in Ohio, and Jeff told me that when someone presents this question to him, the answer is, “Have you talked to other companies in your industries, is this just you, or do you have any hard data?”

At this time, OSPA was a coalition of folks in different states, different shapes and sizes that are all crushing beans, that were all facing the same problem. Organic soybean meal demand is going up, but they’re experiencing injury left and right. In fact, market capacity U.S. domestic crushers had 80 percent of the market. Looking back at 2016-2017, that went down to about 30 percent, based on publicly available records. How could that happen? There’s no question that there’s injury. When this all started happening now, as you’ve heard, two of every three or three of every four purchases of soymeal in the United States are coming from India. What’s the answer? Are these just magic beans India’s using? Of course not. How’s India able to do it? How are they able to achieve these crush margins? So we’re seeing injury across the board.

One response is, well, India just has a lot of beans. Right? But what we’re actually seeing is that Indian organic soybean meal is traded, or sold at 80 to $100 less per ton, doing everything almost exactly the same and being shipped from the other side of the world. How is that possible? How is it possible that they’re achieving those crush margins? Well, as we know, there are subsidies, and this is just one of 51 subsidy programs we flag. Every time the subsidy programs go up, Indian imports to the United States went up so there’s clearly a correlation.

On top of this, there’s also at this time, and again, we’re going back a couple of years, the certification issue. Not only is the stuff coming from India unfairly traded, it’s also potentially not what it says it is. The problem is that we’ve become overleveraged in one country that has tricky weather, natural disasters, terrible internal infrastructure, political instability, transportation challenges, and not exactly an industry that prides itself on transparency and traceability. That isn’t exactly what India is known for in the business world, and they’d be the first ones to tell you that.

And what we saw were three things on the bottom. In 2019, the World Trade Organization looked at these programs and said “these violate the rules, Indian knock it off.” So right now, anybody that has bought organic soybean meal from India, there is no question that you’ve been buying products that violate trade rules. It’s undisputed that those programs violated trade rules.

Number two, as we said, the USDA revoked India’s certification on reciprocity. So right now product coming in from India can no longer be certified. And then lastly, most importantly, COVID-19. All of the disruption that we’re seeing in the market right now is because the industry became overleveraged on one source for organic soybean meal.

Our view was maybe we as an industry could come together and realize that we need to make some changes here, that this has gotten out of whack very quickly. But look, I work with countless industries, steel, aluminum, automotive, and other agricultural sectors. This sometimes takes 5,10, 15, 20 years before folks realize it, here’s a chance to fix the problem. And unfortunately, what happened in the early part of this year, is the minute India reopened, everybody ran back to it. And worse, on the certification issue, there was a group of folks that purchased organic soybean meal from India, and they went to USDA and said, “We know there’s a problem. This stuff may be fraudulent. But can you please keep letting it in?” And at that point, we needed to make a decision as an association as to whether to go forward. And frankly, at that point, I think we all felt a little naive that we had waited as long as we did. We were trying to give the industry a chance to come forward.

So we did file very quickly, and Commerce said we’re going to investigate every single one of these 51 programs. And then there was a public hearing at the U.S. International Trade Commission about injury, every one of the members testified and it was open to the public. And we gave our position. At the end, unanimously, the U.S. International Trade Commission determined that there had been injury; that we were going to go ahead and start this investigation, there was really no question about it.

In the next stage of the investigation, Commerce sends out surveys to all of the Indian producers of meal, and exporters that they can find to ask it they had sold organic soybean meal to the U.S.

The overwhelming majority, if you look at publicly available information, that’s somewhere between 65 to 80 percent of the capacity and production of organic soybean meal in India.

There were three surprising things that happened in 2021. The first was when the folks went and talked to USDA and said, “continue to let questionable organic soybean imports from India”, and the second was the testimony at the ITC that said, “this isn’t violating trade rules, it’s fraudulent”. The third was when folks started breaking contracts with many of you and saying it’s because of this trade case. We can’t give you a meal because of this trade case or because of USDA certification. That really doesn’t make sense because these things are playing out over matters of months and years. The real reason contracts were broken was because folks were overleveraged.

What happened was that at the end of August, Commerce came back and said, we have found that India is subsidizing organic soybean meal production. Commerce also found that the government of India did not cooperate and provide the information that was needed. So again, that should tell you a little bit about where we are.

Right now, if you’re purchasing organic soybean meal from India, there’s not a direct stack. Some of those subsidies have to do with exports dumping as exports, so you don’t double count. The bottom line is if you’re buying organic soybean meal from any of these entities, or if any of these entities are selling it to somebody else to sell to you, we’re tracing all that, you’re paying 278 percent duties from now, for the foreseeable future.

Between now and March 11, there is going to be a vigorous discussion with us at the U.S. Department of Commerce as to whether these numbers should be up, we think they should be higher to level the playing field.

And also level the playing field so that folks in this room and elsewhere can make a decision based on the market as to whether to get into organics, as to what their pricing is, as to what their consumers are the folks on the other side.

We will be aggressively monitoring the movement. Because right now let’s face it, they’re 65 to 80 percent of organic soybean meal, there’s huge demand for it in India, there’s huge demand for it here, there’s going to be a huge incentive to circumvent or evade those duties. There’s going to be a huge incentive to try to bring it in through Canada, through third countries, or mix it in with other things. We’re watching all of this. We have investigators on the ground, we know who’s chartering bulk vessels trying to bring this stuff in. We’re watching everything.

My deepest concern is for those of you that may be buying this as innocent purchasers, you’re going to buy this product from India and you’re going to get stuck six months from now, 18 months from now, 36 months from now holding a pretty dang big bill if you’re found to buy circumvented product. I say that not as a threat, I say it as a concern.

We’ve heard multiple times today and yesterday that the industry can come together and say how do we make sure that anything we’re buying from overseas is playing by the rules, that it is what it says it is, that we’re working with USDA, that we’re that we’re making sure that it’s fairly traded, and that we’re not becoming overleveraged. That’s a healthy industry. And that’s a discussion that I think the OSPA members are willing to have.

ABOUT DAN UJCZO

Dan Ujczo is a senior counsel in Thompson Hine LLP’s International Trade and Transportation law practice groups. He is the lead counsel in the Organic Soybean Processors of America (OSPA) matter pending before the United States Department of Commerce and the International Trade Commission. Ujczo’s trade counsel includes customs classification and compliance, utilization of preferential trade agreements such as the United States-Mexico-Canada Agreement (USMCA), tariff mitigation and exclusions, procurement issues such as Buy America/Buy American, and anti-dumping/countervailing duty issues. He also advises clients in the negotiating of transportation agreements, managing trusted trader and related security programs, and addressing issues at ports-of-entry. Ujczo has served in the governments of Canada and the United States, private practice, and academia. For nearly a decade, Ujczo was a visiting professor of law at Case Western Reserve University School of Law and managed a lab that served as a legal adviser to the U.S. Department of Homeland Security and the U.S. Coast Guard. Ujczo also serves as external general counsel to a number of cross-border companies, including one of the largest privately funded Canada-U.S. economic development projects.

**All views, data, opinions and declarations expressed are solely those of the author(s) and not of Global AgInvesting, GAI News,  or parent company HighQuest Group.