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The main downside is having to absolutely soak everything in fire retardant.

Is that a U.S. requirement perhaps, for certain types of building or so? I mean one can just buy insulation made out of wood fibre (with no additional treatment apart from mechanical processing), apply it in a wooden house and call it a day?

I suspect there's some requirements, but given the flammability of other insulation/building materials, I think it's more of a "try to get people to buy" requirement.

I mean.. there is the IRC. International Residential Code. It's up to your jurisdiction how they enforce it or modify it. Here's the excerpt for loose fill cellulose:

R302.10.3 Cellulose loose-fill insulation. Cellulose loose-fill insulation shall comply with CPSC 16 CFR, Parts 1209 and 1404. Each package of such insulating material shall be clearly labeled in accordance with CPSC 16 CFR, Parts 1209 and 1404.

https://www.law.cornell.edu/cfr/text/16/1209.3 https://www.law.cornell.edu/cfr/text/16/part-1404

Also Equator adjacent countries being hot meaning that they aren't really needed.

Insulation can also keep interior cool. Although I agree that it's only about comfort, not "freeze to death in winter" kind of motivation.

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