"It is necessary to apply the self-defense tax on fertilizers"

Ms. Pham Chau Giang, Head of Damage and Self-Defense Division (Trade Remedies Authority, Ministry of Industry and Trade).

In early March, the Ministry of Industry and Trade issued Decision No. 686/QD-BCT on applying officially the self-defense measure for importing fertilizers DAP and MAP. What is the basis for the Ministry of Industry and Trade to make this decision, Madam?

On March 31st, 2017, Trade Remedies Authority (Investigating Authority) received a dossier requesting the application of the self-defense measures for some importing fertilizers from companies including: DAP- Vinachem Joint-Stock Company (DAP Dinh Vu) and DAP No. 2 Joint Stock Company (DAP Lao Cai). According to the regulations, the Ministry of Industry and Trade issued the decision to initiate an investigation of the case.

The appraisal process showed that the market shares of the two plaintiff companies for the fertilizers DAP and MAP was 93%. After the initiation of the investigation, the investigating authority sent a notice to all relevant parties such as: the World Trade Organization (WTO), the associations, the enterprises, the State management agencies..., and conducted the questionnaires for stakeholders. After that, the investigation agency received more information from the Duc Giang Chemical Company (Lao Cai) showing that the company produced the fertilizer MAP and was also affected by the imported fertilizer. The investigating agency has conducted the figure verification to confirm whether the report of enterprises was correct through checking the books, checking the financial reports, and the production reports, etc. Completing the data collection, the investigation agency sent the documents to collect the comments of about 20 importing fertilizer companies and received the feedback of about 6-7 enterprises.

In fact, during the appraisal process, the investigation agency considered carefully whether the domestic fertilizer companies were affected and damaged really due to the fertilizer imports or other reasons... The results showed that there were many causes, but increase of the importing fertilizers was the main cause of damage for the domestic enterprises.

Each year, Vietnam consumes 1.3-1.4 million tons of fertilizers DAP and MAP. Of which, the imports amounted to 1.1 million tons. The production capacity of DAP fertilizer plants in Vietnam is 720 thousand tons/year. In fact, nowadays, the factories usually produce 400-500 thousand tons/year, but the consumption is only 200 thousand tons/year. Over time, the factories stopped producing because of too much inventory. After considering the factors, the Ministry of Industry and Trade has recently made the preliminary conclusion and imposed temporary self-defense tax on the importing fertilizers at 1,855,790 VND/ton. The Ministry also sent the information to the stakeholders, and listened to the feedback.

The investigation process showed that Vietnam had the legal basis for the imposition of an official self-defense tax equal to the temporary tax as above. However, in the context that the maximum domestic production only met about 52% of the demand, after consideration of all aspects and consultation with the relevant ministries and branches, to ensure the harmonization of interests between the domestic producers and the farmers, on March 6th, 2018, the Ministry of Industry and Trade decided to apply the official self-defense tax rate equal to the difference between the actual selling price and the selling price at the breakeven point of the domestic manufacturing sector by 1,128,531 VND/ton, it was equivalent to 60% of the tariffs that Vietnam had the right to apply in accordance with WTO and Vietnamese law. In addition, the WTO allowed the application of self-defense measures for four years, but the Ministry of Industry and Commerce decided to apply only for two.

Would you like to analyze more clearly the application move of self-defense tax for the domestic fertilizer production companies, Madam?

If the self-defense tax on importing fertilizers DAC and MAP was not imposed, the domestic DAP and MAP companies would suffer heavy losses and face the threat of plant closure in less than two years. However, after applying the self-defense tax, at the end of 2017, early in 2018, DAP Dinh Vu reported their interest. For DAP Lao Cai, although the company still made a loss, this loss was due to large depreciation costs. For example, the company would suffer losses of 5 dong instead of only 1 dong as expected if the self-defense measure was not applied. The imposition of self-defense tax on importing fertilizer helped the enterprises to maintain the loss level as originally planned.

Before imposing the self-defense tax, the increase of the importing , fertilizers were identified as a major cause for the losses of many domestic fertilizer companies. Photo: collection

Many commentators said that in fact, the imposition of self-defense tax on importing fertilizers DAP and MAP was mainly to protect the interests of the State-owned fertilizer producing enterprises, even though there are elements of group benefits? What is your opinion, Madam?

In the three companies involved in the above investigation of self-defense tax, the Duc Giang Chemical Company is a private company. Protection is the protection of goods, the protection of the market and employment, not the protection of specific enterprises. The WTO and the domestic law impose the conditions for taxation application based on actual data of the majority of enterprises in the sector, not distinguishing between private or public owners.

In the application of self-defense tax on the importing fertilizers, the importing fertilizer producers will be affected because the fertilizers DAP and MAP are the materials for the production of the importing fertilizers. In addition, the most dissatisfied objects are the fertilizer importers. However, each policy can not satisfy all parties. If the self-defense tax was not applied, the domestic fertilizer producers would face the risk of bankruptcy. At that time, Vietnam would have to import 100% of DAP and MAP fertilizers, especially from the Chinese market. Vietnam is an agricultural country. The fertilizers are considered as essential commodities. In the long run, if we do not produce fertilizer ourselves, it will be very dangerous. Thus, application of self-defense tax, and support of the domestic enterprises to overcome difficulties are a reasonable solution towards the development of the fertilizer industry in the long run.

In recent times, fertilizer prices will be pushed up. Does the imposition of self-defense tax on the fertilizers cause this situation, Madam?

In this regard, it is necessary to analyze clearly why the price of fertilizers was low for a specific reason in the past, especially in the period 2015-2016. From 2009 onwards, the DAP fertilizer prices were always high around 18,000-20,000 VND/kg. Meanwhile, Vietnam had the source of protein, Apatite, sulfur... which can produce the DAP fertilizer at only 9,000 VND/kg. This was why DAP Dinh Vu was born. In the first 4-5 years, the company had good profits. Based on that, by 2010, Lao Cai DAP was invested. In 2015, DAP Lao Cai put out their products, the price of DAP fertilizer decreased to 9,000 VND/kg. Even, this figure only averaged about 7,800 VND/kg in 2016.

In addition, the fertilizer prices fell sharply due to excess supply from China. Earlier, China saw a sharp increase in DAP prices, so boosted their production. In the period 2014-2015, the world production demand declined. India, USA, South America reduced the import of DAP fertilizers. China did not export to these markets, so they promoted export to Vietnam at any price. This was the key cause of low fertilizer prices in the period 2015-2016. In 2017, when China limited their production, the fertilizer prices inched up. By 2018, the fertilizer prices are on the rise. Even if the self-defense tax on the importing fertilizers was applied, the fertilizer prices in the country would likely increase.

In fact, the fall in fertilizer prices in 2016 was a virtual low. The Chinese fertilizer producers also lost money. The self-defense tariffs imposed by Vietnam were not enough to stop importing the fertilizers, but only to limit the growth of fertilizer imports. If we want to stop it, the tax rate must be about 3-4 million dong per ton.

Would you like to explain the basis for the Ministry of Industry and Trade to make a decision to extend the period of application of self-defense tax on the fertilizers after 2 years?

Since the official imposition of self-defense tax on the fertilizers, the Ministry of Industry and Trade has always asked the three above plaintiffs to send monthly information on their selling prices, and selling quantity as well as their fertilizer production costs in order to consider whether the companies had the advantage of applying tax to increase the price to enjoy the difference. This report has been maintained for a two-year period.

After two years, according to the self-defense law, the Ministry of Industry and Trade will consider whether the situation of fertilizer production in the country is better, as well as the amount of import is being limited. In particular, it is carefully considering whether the domestic DAP and MAP fertilizer industry could manage itself, compete fairly with the import goods, or continue to impose self-defense tariffs if the application of tax is stopped. Based on practical data combined with feedback from the stakeholders, the Ministry of Industry and Trade will make the next decision in line with Vietnam's international commitments.

Thank you very much!