Obama’s “Déjà vu” Vietnam Diplomacy

 A high-stakes diplomatic drama is playing out between the United States and Vietnam. While the focus is on enhancing bilateral economic ties in the ongoing Trans-Pacific Partnership negotiations, the economics are also related to broader security- and human rights issues. This article has some fresh news to report on what’s going on behind the scenes: What the ruling Politburo in Hanoi has decided about deepening its economic ties with the major powers. What Vietnamese President Truong Tan Sang and U.S. President Barack Obama had to say to each other during their July 25 White House meeting in the Oval Office. Who else was in the room — and why that was important.

There is also background information to report that sheds light on the intense pressures that U.S. Trade Representative Michael Froman has been bringing to bear on Vietnam, notably last week in Bandar Seri Begawan, Brunei. On Aug. 22-23, Froman had private talks with his Vietnamese counterpart, Vu Huy Hoang, on the sidelines of the 19th round of the TPP trade talks, which are continuing this week in Brunei. Washington has been playing an intimidation game, pressuring Hanoi to accept an economic deal that is clearly not in Vietnam’s best interests — and just might get away with it.

But it’s not the hard news that captivates, but rather, the déjà vu feeling of another historical turning point in U.S.-Vietnamese relations. On Aug 30, 1945 — 68 years to the day, it turns out, that the TPP’s 19th round of negotiations will conclude this Friday in Brunei — Ho Chi Minh wrote the first of several letters to U.S. President Harry Truman. Uncle Ho sought Truman’s support for Vietnamese aspirations to gain independence from French colonial rule. The letters went unanswered, as the Truman administration’s higher priority involved helping the French recover from the devastations of World War II.

“In historical terms, it was a monumental decision by Truman, and like so many that U.S. presidents would make in the decades to come, it had little to do with Vietnam herself — it was all about America’s priorities on the world stage,” historian Fredrik Logevall has observed in his acclaimed Embers of War. The concerns of more enlightened observers in the U.S. State Department and in the intelligence community, who worried about the consequences of getting on the wrong side of the battle against colonialism, were overridden.

When they met in the Oval Office last month, President Sang displayed a keen sense of history when he gave Obama a copy of one of Uncle Ho’s letters to Truman. Hanoi has good reason to worry that the top Obama White House priority, once again, is not really focused on the Vietnamese economy.

In the TPP trade talks, the White House has been fighting tooth and nail on behalf of the protectionist U.S. textile lobby — Obama’s loyal allies who have supported him in his two successful presidential races. The top priority of the (globally uncompetitive) U.S. mills is denying Vietnam more access to protected U.S. clothing and footwear markets in a TPP trade deal.

As in the late 1940s, a few enlightened U.S. diplomats (quietly) and intelligence officials (very quietly) have now let their concerns be known around Washington. But Washington’s seasoned Asia hands find themselves basically sidelined by the White House domestic political priorities, much as their predecessors were nearly seven decades ago.

Meanwhile, President Sang, on behalf of the ruling Politburo, had his own message to deliver to Obama last month.

To better understand the nuanced blend current spot news and history, let’s begin with that White House meeting.

Spinning Oval Office diplomacy

When it comes to diplomacy, sometimes what the public sees is true — just not the whole picture. Consider the video that the White House posted on its website on July 25. Viewers see Sang and Obama meeting alone in the Oval Office, sitting in armchairs in front of a fireplace, each wearing appropriate dark power suits with muted ties. The image that the White House spinmeisters — who also put the video on You Tube — intended to convey recalls famous historical one-on-one diplomatic talks at the highest level: Nixon with Mao, or Roosevelt and Stalin.

But the Obama-Sang meeting was hardly a Roosevelt-Stalin like moment. It was a scripted, ceremonial occasion, typical of how American presidents have come to host visiting foreign dignitaries in recent years.

An unpublished photo shot by someone else in the room with a wide-angle lens shows that Sang had nine men in the Oval Office with him. Trade Minister Hoang was there, along with Agriculture Minister Cao Duc Phat and the head of Vietnam’s presidential office, Dao Viet Trung. Vietnamese Ambassador to the United States Nguyen Quoc Cuong also was present, as was Lt. Gen. To Lam. Gen. Lam is the deputy minister of Public Security, and formerly headed the ministry’s counter-intelligence department. Lam is also a member of the Communist Party’s Central Committee.

With so many watchers — not all of them necessarily loyal to President Sang’s own supporters in the Politburo — no Vietnamese president would be positioned to engage in substantive bargaining.

A sense of history

Perhaps the three most interesting Vietnamese officials present were the translator, Pham Xuan Hoang An; Foreign Minister Pham Binh Minh, and Colonel General Nguyen Chi Vinh, the deputy minister of national defense. These men carry a sense of history with them — and a longstanding serious professional interest in U.S.-Vietnamese diplomacy. To experienced Vietnamese watchers, the news that An, Vinh and Minh were in the Oval Office will convey a sense of Vietnamese seriousness.

Interpreter An’s father, Pham Xuan An, was perhaps the most important communist spy during the Vietnam War. An’s cover was as a reporter for western news outlets, including Reuters and Time magazine. This complicated man was made a general after the North Vietnamese victory in 1975. But then Gen. An was also detained in a camp for “reeducation” for a year, because he was suspected as being too close to the Americans.

In fact, An loved America (he helped one of the CIA’s most important assets escape when the communists took Saigon). But after the war, the spy explained to his American friends that his top priority had always been working for his country’s independence. An’s double life was the subject of Larry Berman’s fascinating Perfect Spy, published in 2007. Now, An’s son, translator Pham Xuan Hoang An, works in Vietnam’s consulate in San Francisco. Like his father, the younger An is a man who knows both countries very well.

While Colonel Gen. Nguyen Chi Vinh is hardly a household name in America, he is well known to Vietnamese watchers. His father, Gen. Nguyen Chi Thanh, was Vietnam’s second-ever general, after Vo Nguyen Giap. Gen. Thanh was the mastermind of the coordinated uprisings in nearly every major South Vietnamese urban center during the Tet Lunar New Year festivities in January of 1968. The Tet Offensive did not succeed in a military sense. But it is credited with being the proverbial last straw for the fed-up American public, which realized that the White House claims that the communists were on the verge of defeat were false.

Vinh is a member of the Communist Party’s Central Committee, and formerly headed the military intelligence department known (and feared) as Tong Cuc 2. Veteran Hong Kong-based foreign correspondent Greg Torode has called Vinh Vietnam’s wily “Old Fox,” a man who is generally regarded as “Vietnam’s shrewdest strategic thinker.”

Vinh has been a key actor in Vietnam’s delicate balancing act involving major powers with security interests in the Pacific. He has been an important player in a variety of sensitive issues: countering Chinese intimidation in the South China Sea while simultaneously establishing military ties with Beijing; submarine and other weapons purchases from Russia; and also increasing U.S.-Vietnamese military cooperation. Vinh, who is well known in both Washington and Beijing, also showed up earlier this month for private talks with senior defense officials in Tokyo (who also have good reasons to worry about Chinese continuing aggressive moves in the Pacific).

Foreign Minister Pham Binh Minh also has a famous father. Nguyen Co Thach was Vietnam’s foreign minister from 1980 – 1991, where he worked unsuccessfully to normalize ties with the defeated Americans. Like his father, Foreign Minister Minh has a reputation as being keenly aware of the strategic importance of developing closer ties with the United States, by way of countering undue Chinese influence.

Minh related candidly at a Council of Foreign Relations event in 2011 that he had been full of “hatred” during the war, when as a child he endured the U.S. bombing of Hanoi. But ever since he joined the Vietnamese diplomatic service after the 1975 communist victory, Minh — like his father — has focused his own career upon finding ways to forge closer ties with Vietnam’s former war enemy.

Obama’s Diplomatic Team

While the July 25 Sang-Obama White House meeting was a tightly scripted affair, there was at least one moment of spontaneity, where Obama briefly reached out to strike a personal rapport with his Vietnamese guest. When U.S. and foreign “pool” journalists were admitted to the Oval Office for the usual photo opportunity, they shouted some questions to the two presidents. Obama ignored them, but was overheard whispering to Sang, “reporters are the same everywhere.”

A White House press aide declines to discuss who else was in the meeting on either the Vietnamese- or the American side. Pool reporters who were let in for the photo ceremony saw two U.S. officials besides National Security Adviser Susan Rice: Commerce Secretary Penny Pritzker, and U.S. trade negotiator Froman.

Pritzker, an Obama fundraiser from Chicago, is new to foreign affairs. Her Commerce Department is the agency that is widely resented in Vietnam for inflicting protectionist anti-dumping tariffs on the Vietnamese shrimp and catfish industries. And Froman, although also close to Obama, brings more of a domestic political focus to his job than genuine foreign policy experience. (Any diplomatic heavy lifting that was done would have been done a few blocks away from the White House, at Secretary John Kerry’s State Department. Kerry, a Vietnam War veteran, hosted the Vietnamese presidential delegation on July 24. He was in New York when the Vietnamese visitors met with Obama the next day.)

Scripted or not, still, important signals were sent by both presidents.

A Message from the Politburo

The Vietnamese delegation made it clear to Obama — as they had a day earlier in a meeting with trade negotiator Froman — that they were sincere about attaching a very high priority to advancing economic ties with the United States in the TPP negotiations, according to well-informed Vietnamese officials and also senior U.S. diplomatic officials who asked not to be identified.

Carlyle Thayer, a respected Vietnamese watcher who has excellent high-level connections in Hanoi, explains. Thayer, who is affiliated with the Australian Defense Force Academy, says he has seen a copy of an April 10 resolution drafted by the ruling Politburo, which has not yet been publicly released. “It makes economic integration with all the major powers Vietnam’s top priority, over all other forms of integration, including security,” Thayer reports.

In the Oval Office, President Sang stressed to Obama what Vietnamese officials have been saying for the last three years: that if the TPP negotiations are to succeed, Vietnam will need economic incentives — mainly substantial additional access to U.S. clothing- and footwear markets, which are currently encumbered with high tariffs. Vietnam’s main problem with the TPP is that for the same past three years, the White House has held up progress in the negotiations by refusing to make serious tariff-slashing offers.

White House press officials decline to discuss Obama’s response to Sang. For public consumption the two presidents agreed to put out a (bland) public statement noting that they would instruct their aides to do their utmost to complete the TPP by the end of this year. (The White House said the same thing last year, and also in 2011. Froman has been telling people that this time, the administration really means it.)

Signals from Washington

What little detail is known about what Obama said during the meeting has been revealed by U.S. Ambassador to Vietnam David Shear, who spoke to a high-powered Vietnamese-American gathering in Washington, D.C.’s Virginia suburbs on August. 16.  Shear said that the Obama administration considers the TPP negotiations to be “extremely important.” But without “demonstrable progress on human rights” by Hanoi on human rights, “we will not be able to generate congressional support” for a TPP deal, the ambassador added.

Shear related that human rights had come up twice in the Obama-Sang meeting. The first, he said, was part of a general reference linking human rights as the key to enhanced economic and security ties.

According to the ambassador, the second reference to human rights came after Sang expressed Vietnam’s desire to purchase U.S. “lethal” weapons. “If you want to do that,” Shear said that Obama replied, “you’ve got to improve your human-rights practices.” (A full transcript of Shear’s remarks has not yet been posted on the U.S. embassy’s website.)

As Hanoi’s human-rights record is currently being compared unfavorably to Vietnam’s Asian neighbors — even notorious Cambodia has held elections, while Myanmar has been busy freeing its political prisoners — Obama’s point is well taken. The Politburo must be asking itself these days what benefits the country is getting by continuing to imprison more than 160 peaceable political prisoners, whose “crimes” were merely exercising their rights to free political speech and peaceable assembly.

But the same Politburo members who are on the defense on human rights must also be asking why they should sign onto a TPP deal that would offer Vietnam dubious economic benefits.

Secret “21st Century” negotiations

Some parts of the TPP negotiations, to be sure, would clearly be aimed at boosting the Vietnamese economy. Vietnam has been struggling with the politically difficult task of reforming the country’s famously inefficient state-owned enterprises for some two decades.

Vietnam’s SOEs basically are secretive black holes and a drag on more than a third of the country’s economy. When the Obama White House spins the TPP deal as a “high-standard, 21st century” deal that will set an enviable template for trade in the Asia-Pacific region, SOE reforms come immediately to mind.

But other than the self-serving slogans, the White House has been refusing to explain to the watching publics any details of what the Vietnamese are being asked to do. Ironically, the White House is demanding that the Vietnamese economy become more open to market-oriented economics, while classifying what that might entail as a state secret.

Enter “Yarn Backward”

What Hanoi wants most in the TPP is for the United States to slash its high tariffs on imported footwear and clothing. There is a sort of role reversal here. The commies in Hanoi are pressing for free-market access to protected American markets. The Americans are demanding state control. The economic notion is called “yarn forward,” but the economics are hardly forward looking.

As I’ve previously reported, the French 19th century colonialists required that their Vietnamese subjects supply the mother country with textiles. Such imperial preference schemes supported France’s economic domination of Indochina — and inspired Vietnam’s independence movement.

Now the Americans are demanding the same sort of arrangement in the TPP. Vietnam would only qualify for duty-free treatment on its clothing- and footwear exports to the United States if it bought yarn and fabrics from another TPP country — translation: from the declining mills in the U.S. South, not non-TPP countries like China.

It doesn’t take an economics degree to see the flaws. Nobody — beyond insular-looking U.S. mills that long ago lost their competitive edge in global markets — pretends it makes economic sense. Why would any White House pressure the likes of Levis or Gap to buy their (heavy) denim from U.S. suppliers and ship it across the Pacific to Southeast Asia? Why would Obama even think of trying to force giant underwear manufacturer Hanesbrands to stop supplying its Vietnamese manufacturing from Hanes’ established suppliers in China or Thailand? Why would any White House insist that it has the right to disrupt the global supply chains of such respected major American corporations?

U.S. Trade Representative Froman has refused repeated requests to explain exactly why “yarn forward” would be in Vietnam’s best economic interests.

I have also asked U.S. Ambassador Shear if he was able to point to any economic benefits to Vietnam in the yarn forward notion. Shear has been put in the diplomatically awkward position of defending the White House position on yarn forward to the Vietnamese. Shear declined to defend yarn forward’s economic rationale publicly. The ambassador referred the question back to trade negotiator Froman, who again declined comment.

[Ambassador Shear has a reputation as a thoughtful diplomat, albeit something of a team player. His deliberate non-answer could be interpreted as a diplomatic wink, conveying his distaste for the whole business. In private meetings with U.S. corporate executives, Shear has toed the Obama line, but his body language has suggested his discomfort.]

Meanwhile, the White House has been demanding that American clothing manufacturers turn over confidential information on how their global supply chains operate. Intimidated, the companies have mostly knuckled under. The Office of the U.S. Trade Representative even has a special web site for the companies to divulge their business secrets to the government. This access to the private proprietary data has given Froman and his aides the means to instruct the domestic industry where it can source their materials (the U.S. South) and where they can’t (China).

The American clothing importers are now scrambling behind the scenes to receive special exemptions for themselves from the White House. The corporate lobbyists are looking to protect at least parts of their global supply chains from White House interference.

Of course, even with the limited TPP carve-outs that the feds may grant, the rules would always still be subject to sudden change, depending upon unpredictable bureaucratic whims. The American companies could stop the whole business if they had the nerve to stop groveling — which they have never quite summoned in previous U.S. trade negotiations.

China Bashing

The White House unconvincingly denies that the TPP is part of an anti-China economic encirclement strategy. Yarn forward was first included in the U.S. preferential trade deal with Mexico in the early 1990s, and then to other Latin American countries. The idea then, as now, was to hold back Chinese and later, other Asian imports.

It has failed. The rules are so cumbersome that only about 17 percent of Latin American trade goes through the “yarn forward” rules. Companies mostly prefer to pay the tariffs rather than suffer the paperwork.

Relief for Africa

When the Africans were negotiating the Africa Growth and Opportunity Act with the United States in the 1990s, the congressional Black Caucus vehemently objected to yarn forward rules because the principle offended them. Congressmen like Charles Rangel, a Democrat who represents New York’s Harlem neighborhood, fumed that yarn forward reeked of colonialism. Moreover, Rangel protested, such rules were even racist. Consequently, the AGOA trade deal allows the Africans to buy their cotton and other fabrics from China, or anywhere, as long as the final clothes are “cut and sewn” in Africa. In the TPP negotiations, anything short of clean “cut and sew” rules for clothing would hold back Vietnam’s export potential.

Another bitter irony for Vietnam: These days Rep. Rangel and other African-American lawmakers are lobbying for Obama to force upon Vietnam the same yarn-forward rules they formerly attacked as colonial and racist. And Central American countries like the Dominican Republic, who aren’t in the TPP and want to keep Asian competitors at bay, are also piling on Vietnam.

Undeterred, in Brunei last week, trade negotiator Froman still insisted that strict yarn forward rules remained at the “core” of what the U.S. wants in the TPP. He continued to withhold from the public any real details of what was in the TPP, other than the spin that it would be a “high standard, 21st Century” trade template.

The smart money would bet that the Vietnamese will end up swallowing hard and accepting a watered-down TPP deal, giving them modest increased market access for shoes and clothes, while making minimal market-opening concessions to the Americans. Call that TPP Light.

But perhaps the shrewd Politburo operatives in Hanoi, or at least enough of them, have the same sort of determination as did their fathers’ generation. After all, the Vietnamese negotiators should understand that Obama is the one who needs a TPP deal most. Could the American president really allow the TPP to fail, just because the Vietnamese want to sell Americans more pairs of underwear, blue jeans, and sneakers?

Talk about a déjà vu feeling. In the 1940s, President Truman ignored prescient warnings from U.S. intelligence and diplomatic officials that it would be a big mistake for the United States to get on the wrong side of the struggle against colonialism. Now, President Obama pays little heed to warnings that it is unwise to risk important trade talks with Vietnam — and America’s standing in Asia — for parochial domestic politics.

Some people never seem to learn their history.

Shrimp Wars

posted by
on August 19, 2013


by Greg Rushford

Aiming to peel back imports of America’s most popular seafood, the floundering United States shrimp industry launched a legal assault on six Asian and Latin American shrimp-exporting countries in 2003. After two years of maneuvering, the American shrimpers won the battle: federal regulators imposed tariffs ranging from 4 percent to more than 100 percent on imports from Thailand, Vietnam, Brazil, Ecuador, China and India. But now, though the battle wages on, it is clear that the Americans are stuck in a holding action, with little or no hope of ultimate victory.

True, the tariffs have inflicted pain, and not just on the exporters they were aimed at. Importers’ supplies were disrupted until they established new supply chains. Predictably, some of those new sources were found in places like Indonesia and Mexico, where shrimp exporters who were not subject to the punitive United States duties have since enjoyed the windfalls from reduced competition. Thus, despite the tariffs, United States shrimp imports, which totaled around $3 billion a year before the litigation, now exceed $4 billion.

The American shrimp fishermen, who entered the 21st century unable to compete in the global marketplace, are still struggling. No real surprise there: the shrimp farms of Asia and Latin America can supply the product at lower cost in whatever quantities and sizes customers demand. What’s more, further Congressional action designed to protect the fisherman would almost certainly be subject to sanctions by the World Trade Organization. Thus to survive, shrimpers in the United States must serve niche customers who de- mand wild shrimp and are willing to put up with the vicissitudes of ocean catches.

The shrimp war deserves a closer look. In the course of covering it, I met intrepid entrepreneurs from the Gulf of Mexico to the Gulf of Thailand. Their economic fate is largely being driven by basic laws of competition. But these are not theoretical people, and their stories – particularly those of the Cajun shrimpers in the Louisiana bayous, who are being left behind for cultural as well as economic reasons – are compelling.

I believe there is room for sympathy for all parties in the rough and tumble of global markets – all, that is, except for politicians on Capitol Hill who follow the money, and the bureaucrats at the Department of Commerce and the Customs and Border Protection Agency who invent their own rules as they go along. The only wrongdoing of those who have been penalized for trafficking in foreign shrimp has been to bring affordable seafood to Americans’ dinner tables.

have been penalized for trafficking in foreign shrimp has been to bring affordable seafood to Americans’ dinner tables. But before ex- plaining the how’s and why’s, it is worth examining the conflict through the eyes of people who make a living (or would like to) in the shrimp business.

Capitalist Heroes

One of the heroines is Kim Chauvin, a determined entrepreneur from the bayous of southern Louisiana. I visited her at her home in the eponymic town of Chauvin, La. (pop. 3,075) in the summer of 2003. Kim’s husband David, a fourth-generation shrimp fisherman who, with his father, had built his own 73-

foot boat, the Mariah Jade, was threatened with bankruptcy by falling prices for wild- caught shrimp. Indeed, many of David’s peers had already given up and were looking for other jobs.

So Kim Chauvin got busy learning how to add value to the wild-caught shrimp through savvy marketing. A high school graduate and a mother of two, she took a 10-week class at a local university where she learned marketing, financial management and the fundamentals of business planning.

Chauvin started by selling fresh shrimp by the roadside. Four years of perseverance later, the Chauvins now own three boats and sell some 10,000 pounds of Louisiana shrimp a week via the Internet, as well as to restaurants as far away as Minnesota – niche markets that didn’t exist until the Mariah Jade Shrimp Co. created them.

Kim Chauvin likes foreign competition as much as Rush Limbaugh likes feminazis, and adamantly refuses to sell imports. But while she has supported the antidumping litigation, Chauvin spends less time complaining and more time developing market opportunities. She has learned that because wild-caught shrimp from the Gulf of Mexico taste better than farmed shrimp – the one fact that all parties seem to agree upon – there are more niche markets waiting to be developed by domestic entrepreneurs wielding Cajun spices.

Another heroine is Christine Ngo. Her family also became economic risk-takers be- cause life offered them few alternatives. In 1978, her father, Hua Ngo, piled her, her brother and mother into a boat and fled their native Vietnam. The Ngos made it to a refugee camp in Malaysia, and the family was re- located in San Francisco the next year. Hua Ngo, who never had had the opportunity for much schooling during the Vietnam War (in which he lost three brothers), worked as a $4.24 an hour laborer for a couple years, be- fore he started peddling fish on the streets of Chinatown.

Fast forward to 2007. Christine, a 34-year- old college graduate and Los Angeles resident, plays a key role in managing H&N Seafoods, which imports shrimp and other seafood from all over the world and last year generat- ed $250 million in revenues. The Ngos also buy domestic seafood, including some wild- caught shrimp from Louisiana. Coping with the various legal and financial uncertainties that came with the antidumping litigation was “a headache,” Christine relates. “But we worked around it.”

Or consider Choopong Luesukprasert, the managing director of Marine Gold Products Ltd. Seven years ago, Choopong’s mother began Marine Gold, located about a 45-minute drive south of Bangkok. At the time, Thailand was still reeling from the Asian financial crisis of the late 1990s. Choopong was 26 and not long out of college. “We didn’t know any- thing then,” he recalled, when I recently visit- ed his operation. “We almost went out of business after the first two years.” But the family persevered.

Now, Choopong is the managing director of Thailand’s ninth-largest seafood exporter. Marine Gold supplies shrimp to Japan, Eu- rope and Canada, as well as to major American retailers including Costco – more shrimp than the entire American shrimp industry could deliver. The bright-eyed young women I saw peeling and packaging shrimp at Marine Gold worked like demons in the sparkling clean modern plant, for roughly $300 a month. Choopong told me that next year, Marine Gold will employ at least 2,500 workers. Despite the headaches and expenses of litigation, Choopong said, the United States tariffs of 6 percent have only been a distrac- tion. “They have made me a better competitor,” he concluded.

Choopong also pointed out that Marine Gold, like virtually every other shrimp pro- cessor in the world, buys peeling and cooking equipment from Laitram Machinery Inc. Laitram manufactures both at its Louisiana head- quarters and at a subsidiary in Denmark. Choopong said that he could understand why the United States government would want to help American shrimpers. But what would happen to other American companies like Laitram, he asked, if Washington put their customers out of business?

Troubled Shrimp Waters and Cultural Icons

When I visited isolated Terrebonne Parish, some 70 miles south of New Orleans, in 2003, it quickly became evident that Cajun fisher men in the bayous of southern Louisiana had been happily oblivious to the march of technology and globalization. “This is not just an industry, this is a culture,” Bobby Bergeron, the parish president, explained at a meeting of shrimpers. “It’s where I come from. It’s who I am.” Bergeron was rightly proud of his gentle and tolerant Cajun culture and its people.

“I sit back, turn on the music, and steer with my toes, feeling happy,” one of the Cajun cultural icons added the next day, while demonstrating at dockside how he does just that. This is a Bubba Gump lifestyle that shrimpers learned from their daddies, most of whom never had much opportunity for, or interest in, book learning.

I met a 25-year-old shrimper named Benji and his girlfriend, who was pregnant. Benji, who said he had left school after the eighth grade, knew he was in trouble. “I’ve been trolling a week and a half, and I’ve only made $400 so far,” he said. “Trolling is fun. All I ask is bring the price back where it used to be,” Benji declared – not realizing that the laws of supply and demand will never allow that to happen.

I also visited a dock used by Vietnamese- American shrimpers, former “boat people” who fled to the bayous after the fall of Saigon in 1975. A pleasant-looking white man, who happened to be leaving the dock as I arrived, smiled and waved. I learned later that he was from a Texas bank, looking to seize a boat from one of the many owners who had fallen into arrears on loans.

But these Vietnamese-Americans are not likely to share the fate of their Cajun counter-parts. A man who introduced himself as Captain Nguyen explained that two of his children were in college, one of whom plans to be a physician. Despite the difficult shrimp economics, at the end of the day the Vietnamese exile community is going to make it, one way or the other.

Lagniappe from Senator Byrd

The one competitive advantage that the American shrimpers have enjoyed in recent years was a gift from Senator Robert Byrd. In October 2000, the venerable senior senator from West Virginia slipped a rider into an agricultural appropriation. Known as the Byrd Amendment, the law makes domestic petitioners (rather than the U.S. Treasury) the recipients of tariffs collected in antidumping litigation. The idea was to tax the foreigners twice – first by making them pay the tariffs, and second by handing their money to their American competitors.

There had been no public hearings, and no opportunity for more objective heads to point out that the measure would likely run afoul of U.S. obligations as a member of the World Trade Organization. This is, in fact, what a WTO dispute-resolution panel determined in 2003. Congress eventually voted to scrap the measure, but delayed the date until October 2007 – giving antidumping petitioners an extra four years in which they could keep the fruits of their legal efforts.

The idea of the Byrd Amendment was to tax the foreigners twice — first by making them pay the tariffs, and second by handing their money to their American competitors.

Who’s Dumping on Whom?

Last year, U.S. Customs handed over $101 million in Byrd Amendment cash to the do- mestic shrimp industry. Kim Chauvin, who says that her share amounted to around $72,000, told me that she couldn’t understand why people regarded the Byrd Amendment as double taxation. Since the foreigners’ “unfair” shrimp dumping had hurt shrimpers like her, Chauvin reasoned, it was only fair that injured Americans should be compensated for their losses. That, however, doesn’t square with the reality of how the American anti- dumping laws are administered.

For openers, U.S. trade laws create economic rules for foreigners that don’t apply to their domestic counterparts. Consider the loss leaders often prominently displayed in supermarket aisles, or for that matter all the cars sold by Detroit at prices that may cover the costs of materials but not the companies’ considerable overhead. As this discounting is not part of a predatory pricing scheme to put rivals out of business, ruthless price-cutting – Coke versus Pepsi, Wal-Mart versus Target, for example – is regarded as a sign of healthy competition. Within domestic borders, pricing according to demand in various places and segments of the market is entirely legal, even when it doesn’t cover the full costs of production. But when goods come from other countries, price discrimination is called dumping and subject to punitive duties calculated by hostile paper-pushers.

Cutting to the chase, United States anti-dumping laws have nothing to do with free-market economics and everything to do with interest-group politics. Indeed, the laws have deliberately been crafted to give federal officials sufficient discretion to find almost every foreigner at fault. The antidumping case for shrimp was typical: the Commerce Department rounded up the usual suspects and pronounced them guilty of unfair pricing.

Consider how American officials “investigated” Vietnam and China. The Commerce Department categorized both as “non-market” communist economies that are not disciplined by market forces. And this non-reality allowed the department to determine the cost of foreign production from comparable free-market economies, rather than from the actual accounts of the foreign producers who were charged with dumping.

Was the price of water used by Chinese shrimp farmers “fair” or “unfair” in 2003? The Commerce Department looked up the average price of water in four cities in India in a 1997 edition of the Asian Development Bank’s Water Utilities Data Book. For Vietnam, the officials looked at the six-year-old published rates for water in two cities in Bangladesh. Commerce played the same pretend game to find “fair” prices for ice, electricity, factory overhead costs and so on. They found that a tariff of 112 percent was needed to bring Chinese shrimp prices up to real costs. For Vietnam, the tariff was calculated at 93 percent.

When pressed in formal legal proceedings, U.S. officials finally conceded that the 21 Vietnamese and 24 Chinese shrimp exporters charged with dumping did, in fact, operate in “market driven” environments Still, it was de- cided that, market or no market, all were sell- ing below cost, a decision that puzzles Choopong, the Thai exporter. “Why would I be in business to lose money?” he asks. The duties were recalculated at 16 percent and 49-98 percent for the Vietnamese and Chinese, respectively.

Heads I Win, Tails You Lose

In the case of Ecuador, the bureaucrats used an outrageous methodology called “zeroing,” in which the numbers-crunchers eliminated high-priced imports in calculating the aver- age price of imports in order to justify a 4 percent antidumping tariff. But zeroing has been declared a violation of World Trade Organization protocols. And Washington is being pressed to drop the tariffs on Ecuador.

That, however, doesn’t exhaust the protectionists’ bag of dirty tricks. U.S. Customs officials who collected the tariffs came up with a creative accounting idea for increasing the amount of money an importer must deposit as a contingency against tariffs and other fees collected at the border. When the National Fisheries Institute took Customs to court over the issue, Judge Timothy Stanceu of the U.S. Court of International Trade ruled that the agency had been motivated “by domestic political pressures to take action directed against the shrimp-importing industry.” As one Cus- toms memo that was never supposed to see the light of day candidly put it, “The domestic petitioners in this case are from South and South- eastern states that have Congressional representation” on key committees. “The importers are not as geographically concentrated.”

Beating the System

Fatima Satya, who runs a California-based importing firm called Pacific Supreme Company, has learned a thing or two about coping with such dirty tricks. Pacific Supreme’s survival was imperiled when its major supplier in China was hit with nearly 100 percent antidumping duties on shrimp. So Ms. Satya (and many other importers at risk) went “tariff shopping,” shifting to suppliers from countries yet to be targeted by domestic shrimpers. Last year, shrimp imports from Indonesia rose by 15 percent, from Bangladesh by 30 percent, and from Malaysia by 17 percent. And that more than made up for the decline in imports from India and Vietnam.

The lessons for the struggling American shrimp industry seem clear: Instead of resist- ing globalization, embrace it. Don’t resent the success of Thai entrepreneurs like Marine Gold’s Choopong; emulate it. There is a lot of money to be made by Cajuns who can add value to imported shrimp with Louisiana-style cooking and recipes. Learn more about the smart marketing of tasty wild American shrimp into niche markets, following the lead of entrepreneurs like Louisiana’s Kim Chauvin. And learn from Vietnamese-Americans like Captain Nguyen in Louisiana, whose daugh- ter is in medical school. Learn, too from Hua Ngo, who refused to be defeated when life dealt him a wretched hand.

In seafood markets – for that matter, in virtually every global market – the winners are those who learn to swim faster.

GREG RUSHFORD edits the Rushford Report (www.rushfordreport.com), an online newsletter that analyzes the politics of international trade and finance.

It’s the Imports, Stupid!

posted by
on July 24, 2013

A Gallup Poll this February reported that 57 percent of Americans view open trade positively. That’s certainly an improvement from surveys a few years ago, which found that far more of them believed in flying saucers (35 percent) than supported free trade (9 per- cent). Yet, Gallup found that 35 percent of the public – that’s some 100 million Americans – still see imports as an unambiguous threat to their jobs.

No wonder, considering that all recent American presidents, regardless of party, have had the same take on the benefits of trade: exports are good things, because they create jobs; job-threatening imports, we won’t talk about. George W. Bush, speaking in 2003 to an audience of importers and exporters at the Port of New Orleans, explained that the famous port existed to promote U.S. exports, avoiding any mention of the politically incorrect “i” word. And Barack Obama helped win a second term by skillfully tapping into fears of import competition. “I don’t want to buy stuff from someplace else,” he said, vowing to spark a U.S. manufacturing renaissance by doubling exports by 2014. Audiences cheered when Obama told them that his three favorite words were “made in America.”

Come again? The mercantilist political premise – we want to sell our products to for- eigners and buy as little from them as possi- ble – is a ticket to stagnation and conflict. In- deed, rapidly evolving trade patterns have scrambled who does and who doesn’t benefit from imports, putting many opponents of open trade in the position of undermining their constituents’ long-term interests – in ef- fect, cutting off American workers’ noses to spite their faces.

In the 21st century, imports are as vital to the health of American manufacturing as the coronary artery is to the health of the human heart. Nearly two-thirds of the $2-trillion- plus worth of U.S. imports are component parts and raw materials that sustain Ameri- can jobs. If you want to export more manu- factured goods, you’ll need to import more components. “Manufacturing in today’s world of interdependent global supply chains,” Pascal Lamy, the director-general of the World Trade Organization, explains, “is no longer just about products made in the U.S.A., or France or China – but ‘made in the world.’”

Lamy’s reasoning is supported by solid re- search. Economists at the Word Trade Orga- nization, working with their colleagues from the Organization for Economic Cooperation and Development, have created sophisticated databases that show how global supply chains (sometimes called value chains) dominate just about all manufacturing. Sweden’s Na- tional Board of Trade has published research that translates this data into common sense terms. Thus, for example, about half of a Volvo’s value is added by parts imported from the United States, Japan, England, Canada and Argentina. So, while Volvos may be less Swedish these days, the supply chain that al- locates component acquisition according to what individual economies do best makes it possible to do a fair share of the manufacturing in high-wage Sweden.

locking in economic logic

To be sure, neither of the 2012 presidential candidates could be accused of walking an extra mile to enlighten the public on the job- sustaining role of imports. Mitt Romney’s most relevant utterance was a promise that, on his first day in the Oval Office, he would roll back imports from the “cheating” Chinese. Romney also accused his Democratic opponent of having been “asleep” on promoting job-creating U.S. exports.

Obama definitely didn’t look sleepy when he reminded American audiences that, with trade, employment was priority No. 1. “It’s time to stop rewarding companies that ship jobs overseas, and start rewarding companies that are creating jobs right here in the USA,” Obama told the cheering workers at the Mas- ter Lock Company in Milwaukee.

Master, which for nearly a century has made the iconic locks that adorn so many high-school lockers, had come to Obama’s attention when it moved about 100 jobs back to Wisconsin from China. The president got the point that supply chains matter; when businesses like Master Lock create new American jobs, he explained, “it’s also good up and down the supply chain, because if you’re making this stuff here, that means that there are producers and suppliers in and around the area who have a better chance of selling stuff here.” But he neglected a critical extension of the argument – that supply chains ignore borders.

boeing, boeing

Two days later, Obama was in Everett, Wash., where he visited the assembly line for Boeing’s new 787 Dreamliner, which he called “the world’s most advanced commercial air- plane.” “Companies like Boeing,” Obama pro- claimed, “are realizing that even when we can’t make things cheaper than China, we can make things better. That’s how we’re going to compete globally.”

While Dreamliners are made in Washing- ton State, the entire U.S. economy gets a boost, thanks to “nearly 11,000 small, medium and large supplier businesses,” the economist-in- chief explained. “Boeing has suppliers in all 50 states, providing goods and services like the airplanes’ groundbreaking carbon-fiber- composite aircraft structure from Kansas, ad- vanced jet engines from Ohio, wing compo- nents from Oklahoma, and revolutionary electro-chromic windows from Alabama,” he said. Again, though, he stopped short of ac- knowledging the role of imports in the mix.

The following month, Obama visited a Rolls-Royce plant in Petersburg, Va. that makes jet engines for the Dreamliner. The president praised the venerable British manufacturer for investing in America. It is “creating jobs here, manufacturing components for jet engines, for planes that we’re going to send all around the world,” he declared. What Rolls- Royce has been doing in the United States rep- resents “the kind of business cycle we want to see,” Obama stressed. “Not buying stuff that’s made someplace else and racking up debt, but by inventing things and building things and selling them all around the world stamped with three proud words: ‘Made in America.’”

Well, sort of. It doesn’t take any special eco- nomic insight to see how global supply chains sustain the jobs of Americans who make locks, airplanes and jet engines. Just consider their provenance.

where do master locks come from?

Master Lock’s signature products are composed of a dozen or so parts, notably cylinders, ball bearings, shackle pins and screws. In 1995, the last year for which publicly available documentation is found in U.S. Customs’ re- cords, 9 of the 11 parts used in one of Master’s locks were made in Milwaukee. But the lock case and cylinder-retainer block were imported from Taiwan – and those two parts constituted an estimated quarter to a third of the production cost of the finished lock.

In Milwaukee, Master Lock now employs more than 400 workers, including the workers in the 100 jobs repatriated from China. The company has another 700 workers in Nogales, Mexico. The Milwaukee and Mexican plants account for about 55 percent of the company’s lock production, with the remainder still in China. These Chinese, American and Mexican workers depend upon each other so much to complete the supply chain that it is often difficult to say which country really makes the locks. Indeed. In 2010, U.S. Customs officials struggled to determine where one of Master Lock’s products really was made. It had ten components, of which the principal ones, the lock body and the shackle, were made in Milwaukee and China, respectively. All of the components were then assembled in Mexico. Customs finally decided the finished padlock should be marketed as a product of Mexico – a judgment call that reflects political and bureaucratic imperatives more than reality.

Other times, Master Lock has imported the lock bodies and shackle assemblies from Asia or Mexico, with workers in Milwaukee finish- ing the product by attaching the cylinder locks. Those padlocks were labeled “Made in USA.” (As a chastened Karl Marx might have quipped if he were alive today: “Workers of the world: you really are united.”)

global dreams

It’s the same story for Boeing’s Dreamliners, which Obama praised for having supply chains that stretched to all 50 states. The Swedish National Board of Trade estimates that 70 percent of the Dreamliner’s components are produced outside the United States, with suppliers “spread over 135 sites around the world.” In fact, the board said, “the wings are produced in Japan, the engines in the United Kingdom and the United States, the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France.”

fuzzy economics

When Obama toured the Rolls-Royce engine plant near Richmond, “I learned a bit about how a jet engine comes together,” he told the workers there. The president drew appreciative chuckles when he added, “I’m a bit fuzzy on some of the details.”

But the president insisted he was clear on one principle: the virtues of a buy-American world. “Think about how important this is,” he said. “I mean, imagine if the plane of the future was being built someplace else.”

But while we’re in an imagining mood, re- flect on how the jobs of those Americans who make jet engines in Virginia would fly away if the plant lacked easy access to imported com- ponents. For example, the Rolls-Royce AE 3007 gas-turbine engine – a workhorse in short- haul passenger jets – requires titanium fittings imported from “unspecified” countries, U.S. Customs records show.

Those engines also need fire-resistant braided cord that ties bundles of electric cables together, which is imported from England. There are also stainless steel oil-seals and bolts from Great Britain, and stainless steel gravity tanks from Sweden. Imported socket screws, shaft liners and sleeves for thruster-propulsion systems from Finland, Sweden and Norway (and machine screws from too many countries to mention) keep Rolls-Royce’s Virginia workers busy.

Throughout the presidential campaign, Obama wrapped himself in the flag of eco- nomic nationalism without saying much about imports. And the shtick worked. Rom- ney tried his best to turn the tables, calling Obama the true “outsourcer-in-chief ” for hav- ing spent federal stimulus funds on American manufacturers who had been making wind turbines from – horrors! – imported blades. But it apparently didn’t quite resonate. (And it didn’t advance the candidate’s buy-American credentials when it came out that his wife had been flying around the country on a chartered regional jet made in Canada.)

export this!

Obama’s first-term, five-year goal of doubling U.S. exports of goods, which totaled $1.07 trillion in 2009, remains a worthy objective. To accomplish that, the president is busy tout- ing the usual policy mix: trade missions, in- vestment in infrastructure and breaks for small businesses. In his 2013 State of the Union message, the president announced that he would like to create 15 “manufacturing hubs” around the country. He also wants Congress to give the Defense and Energy Departments $1 billion, “to turn regions left behind by globalization into global centers of high- tech jobs.”

Ironically, though, the president’s national export initiative has pretty much ignored one federal program that has a highly successful record in promoting American exports. In fact, expansion of U.S. foreign-trade zones – which revolve around cheap access to imports– weren’t even included in the Obama export- doubling program.

Foreign-trade zones have been around since the Great Depression, when Congress and President Franklin D. Roosevelt were scrambling for ways to keep Americans work- ing by getting around the crippling Smoot- Hawley tariffs that hovered in the 50-plus percent range.

Manufacturers in these special zones – ad- ministered by the Commerce and Treasury Departments – were allowed to import the raw materials and components to manufac- ture finished products without initially paying import duties. The goods could then be sold in the United States, where they would be sub- ject to the lower U.S. duty rate for the finished product. Or they could be exported to other countries without paying any U.S. tariffs.

That model for stimulating exports is still in place. These days, some 2,800 companies em- ploying more than 340,000 American workers operate in such zones in every state of the union. And talk about results: from 2004 to 2008, the value of exports from U.S. foreign- trade zones more than doubled, from $19 bil- lion to $41 billion. Since 2009, they are up by more than 80 percent.

Moreover, these zones operate in parts of the country that have lagged behind in the rapidly evolving economy. BMW has ex- ported more than one million spiffy roadsters and four-wheel-drive vehicles from the free- trade zone in Spartanburg, S.C. since 1994. Mercedes exports its M-class SUVs and other luxury vehicles from a duty-free zone in Ala- bama. Meanwhile, Toyota recently announced it will be selling its Kentucky-made Venza crossover to customers in Russia and Ukraine.

Another shining export success originates in Elkton, Va. (pop. 2,700), nestled in the Shenandoah Valley about 100 miles south- west of Washington. There, pharmaceutical giant Merck operates a sprawling factory that makes drugs to treat diseases from HIV to river blindness to Parkinson’s to cervical cancer. In a story that should now be familiar, the Merck plant depends on cheap imports, pay- ing no U.S. tariffs on the imported raw mate- rials – various chemicals, gums, resins – that otherwise would be subject to duties.

Nonetheless, it remains an uphill battle to beat back opposition to foreign-trade zones. The United Auto Workers opposes them – especially those in the South that use non- union labor. Detroit automakers, which have in the past operated from U.S. foreign-trade zones, no longer serve as a counterweight. Thanks to the North American Free Trade Agreement, General Motors can make its Silverados and Suburbans in Mexico and export them duty-free to the United States. The foreign automobile manufacturers that operate in foreign-trade zones in the rural South have to pay normal U.S. tariffs on automobiles if they sell their cars in the United States (as op- posed to exporting them).

When Obama became president in 2009, he was offered the opportunity to support an idea aimed at boosting the number of jobs of Americans who work in foreign-trade zones. Representative Bill Pascrell, a New Jersey Democrat, was pushing legislation that would have put the Americans who make BMWs in South Carolina on an equal footing with GM’s Mexican workers by exempting domes- tic sales of autos made in free-trade zones from the regular tariff.

But Obama, loath to challenge the auto workers’ union, refused to support Pascrell’s proposal. Nor did any major Republican show much interest. Even Pascrell decided not to speak in favor of his own bill, which he quietly dropped.

reality check

Though polls show a majority of Americans are inclined to accept global economic integration, politicians see little advantage in of- fending the vociferous third who are still demonizing imports. That’s why both Republican and Democratic bigwigs decline to explain the relationship between exports and imports in intellectually honest terms.

But corporate CEOs don’t have that excuse. And many of America’s top business leaders – who certainly know better – have refused in recent years to acknowledge the vital role that imports play in keeping domestic jobs, preferring to invest their political capital on other issues. U.S. steelmakers, to cite the most glaring example, know that their American workers cannot make finished steel products without access to duty-free imports of semi- finished steel. Yet presidential candidates who want to win votes in steelmaking states like Pennsylvania and Ohio long ago learned not to rock that particular political boat.

The more encouraging news is that some influential trade groups have begun to speak candidly about the role of imports in the U.S. manufacturing supply chain. For the past two years, the U.S. Chamber of Commerce has been supporting an Imports Work For America week. The Business Roundtable –- not so long ago a bastion of anti-imports sentiment –- recently posted a study by Matthew Slaughter, a Dartmouth economist, that praises the contributions of imported goods to U.S. manufacturing.

“Exports are great for Caterpillar, but so are imports, and that’s a point that often gets overlooked,” Doug Oberhelman, Cat’s chief executive and the head of the Roundtable’s task force on trade, said. “Without access to manufacturing inputs from around the world, Caterpillar’s global supply chain would be less competitive and our ability to compete in all markets would be diminished.”

Free trade has always been controversial because it produces both winners and losers, even though the evidence that open trade promotes innovation, retards inflation and increases consumer-centric competition is undeniable. But with the economy changing, the exports-good/imports-bad mantra is less and less relevant to groups traditionally op- posed to free trade. The more the American public hears the simple truths about why im- ports are good things, the sooner the politics of trade will cease to be dominated by interests stuck in the 1980s.