Author Archives: Greg Rushford

Peeling Away the Rhetoric Over Shrimp Tariffs

Posted on by

Earlier this month, the U.S. Department of Commerce issued a preliminary ruling that a seven-month investigation had determined that China and Vietnam have been “unfairly” dumping cheap shrimp in U.S. markets, thus threatening the jobs of hard-working American shrimpers. To enable the Americans to compete fairly with the Asians, it imposed antidumping tariffs on Chinese exporters as high as 112%. Vietnamese shrimpers got off lightly by comparison, with tariffs of up to 93%.

That’s a jumbo issue, given that slightly more than $1 billion worth of shrimp from Vietnam and China was imported into the U.S. last year. Indeed, by the end of this month, four other major shrimp exporters accounting for another $1.5 billion of U.S. imports — Thailand, India, Ecuador, and Brazil — are expected to be found guilty of dumping too. “The Bush administration has been very aggressive in enforcing U.S. trade laws,” boasted James Jochum, the assistant commerce secretary in charge of antidumping.”

But a close look at what Commerce officials did in their enthusiasm to determine that Chinese and Vietnamese shrimps had been “dumped” peels away the high-minded rhetoric about “unfair” foreign trading practices that supporters of U.S. antidumping laws regularly cite.

According to their own findings, published in the Federal Register, the official bible of U.S. regulators, Commerce found that many of the companies involved were setting their prices “independent of the government and without the approval of a government authority.” The bureaucrats accepted that 21 Vietnamese companies and 24 from China had been setting prices that were market driven.”

Yet they refused to follow their own logic and recognize that profit orientated companies would hardly be charging below cost for long. The most that commerce would concede is that these market driven companies should face a lower tariff — 16% in the case of Vietnam, and between 49% and 98% for China — than the higher rates imposed on companies which failed to prove they fell into this category.

But market-driven or not, all the accused shrimp exporters were found guilty of dumping because Uncle Sam considers Vietnam and China to be “non-market” economies. So, to calculate what shrimp prices in the two Asian trading partners should have been, Commerce looked to “surrogate” countries with allegedly comparable economies. The officials pretended that China is really India, and that Vietnam is really Bangladesh.

To see if the price of water for Chinese shrimpers was unfair in 2003, Commerce turned to the 1997 edition of the Asian Development Bank’s Second Water Utilities Data Book, and checked “the average of the price per cubic meter for four cities in India.” To find the prices that Vietnamese shrimpers paid for their water last year, the U.S. officials turned to the Bangladesh chapter of the same ADB publication, this time checking the water rate for two Bangladeshi cities.

To get Chinese and Vietnamese wage rates for 2003, Commerce checked Yearbook of Labour Statistics 2001, published by the International Labour Office in Geneva. To value the cost of ice in China last year, Commerce officials consulted the September 30, 2002 edition of Hindu Business Line, where they found an article that “presents a high and low price paid by seafood processors in India for block ice.” And to find the rates for diesel fuel, electricity, and coal in China, Commerce consulted Key World Energy Statistics 2003, which is published by the International Energy Agency — checking, of course, India. At least this time, the American investigators got the year they were supposed to be investigating right.

To find the purchase price, factory overhead costs, general administrative expenses, and profits for all Chinese shrimp processors, Commerce relied upon the 2002-2003 financial statement of just one seafood exporter in India, Nekkanti Sea Foods Ltd. (Based in Andhra Pradesh, Nekkanti is about to be found guilty of dumping shrimp, too.) And to determine the purchase prices, etc. for all Vietnamese shrimpers, the officials used data from one Bangladeshi shrimp processor, Apex Foods Ltd.

When looking at the records of the two Indian and Bangladeshi shrimp companies, the U.S. antidumping investigators didn’t even distinguish between the prices of shrimp according to the actual count sizes — which vary from small to super-jumbo — by which they are sold. The bureaucrats just blended the average price estimate for all shrimp products from the two companies in India and Bangladesh. Anyone who has ever shopped for shrimp in a supermarket — and seen how much prices vary by count size — knows how ridiculous this is.

Even lawyers representing American shrimp farmers who brought the dumping suit admit the Commerce methodology is open to criticism. Brad Ward, a Washington lawyer for the petitioning Southern Shrimp Alliance, says that the officials were doing the best they could to apply the law.

Will the antidumping tariffs really help the struggling American shrimp industry? Alas, no. The root of the problem isn’t dumping, but that the U.S. shrimp industry entered the 21st century unprepared to compete. Americans fish for shrimp in the wild, and simply cannot compete with modern aquaculture. Foreign shrimp farms supply nearly 90% of the U.S. market. The six accused “dumping” nations only supply about 75% of the U.S. market. Logic and experience dictate that antidumping tariffs against them won’t plug the dike; already, shrimp exporters like Indonesia have begun to fill the void.

No matter. Some American shrimpers are hoping to find the big bucks in Washington, D.C. Under the so-called Byrd Amendment of 2002, domestic antidumping petitioners can dip into the U.S. Treasury and pocket the antidumping tariffs. Although this law has been determined to be inconsistent with U.S. obligations as a member of the World Trade Organization, Congress has so far refused to repeal it.

Last year, U.S. Customs forked over $190 million in Byrd revenues to antidumping petitioners. The Timken Co., the Ohio-based bearing manufacturer, was the biggest winner, raking in $72.5 million (twice Timken’s 2003 profits). The steel, iron and pipe lobbies raked in another $37.4 million. And Louisiana’s otherwise unprofitable processors of crawfish tail meat have gotten $17.2 million in Byrd revenues from China in the last two years. Now, some U.S. shrimpers want their share.

The U.S. shrimp industry is already embroiled in a scramble over who will get the hoped-for Byrd monies. The Louisiana Shrimp Association has even gone into U.S. District Court in New Orleans, demanding that a judge order the federal government to cut LSA members in on any Byrd funds that the Southern Shrimp Alliance might collect in the antidumping case.

Why fish for shrimp, when you can make more money by fishing Uncle Sam?

Talk about what’s really unfair.

For Obama, Saving American Jobs Can be Politically Inconvenient

Posted on by

This is a story with a good beginning, if not — so far at least — a happy ending. The good beginning stems from an obviously sensible economic idea aimed at creating and preserving American jobs. That it has been shot down — again, at least for now — illustrates the enduring power of entrenched lobbies in Washington, D.C., where politics so often trumps economics. For Obama watchers (and who isn’t, these days?), the story is especially revealing.

Let’s take it from the top.

Last year Rep. Bill Pascrell, a Democrat from New Jersey who sits on the Ways & Means Committee, enthusiastically sponsored legislation to help safeguard American jobs by liberalizing trade. Pascrell’s so-called Trade Agreement Parity bill was aimed at giving US-based manufacturers that operate in so-called “foreign trade zones” within the US the same zero-duty economic benefits — that’s the “parity” part — now enjoyed by manufacturers that make their widgets in countries that have preferential trade agreements with the US. For example, thanks to the North American Free Trade Agreement, manufacturers that set up shop in Mexico can import all the components they need to make their widgets without paying tariffs, and then can export their finished goods duty-free to the United States.

Pascrell’s legislative proposal — called by its acronym, TAP — was based on creating the same economic incentive to keep manufacturing operations in foreign trade zones within the US. Such zones — there are now nearly 500 of them, involving roughly 2,600 US-based manufacturers in all 50 states, according to the most recent publicly available figures — date to the 1930s Depression era. Then, lawmakers looked for ways to keep Americans working by getting around the crippling Smoot-Hawley tariffs that hovered in the 50-plus percent range. The manufacturers inside these zones are allowed to import their raw materials into the US duty free: think of components that go into electronic products made by companies like Intel and Hewlett-Packard; or drugs made from chemicals imported by companies like Merck; or refined oil products made by crude-oil importers like Exxon and Chevron. The finished products can then be “exported” from within the duty-free zone into the US proper. Instead of paying US Customs officials the higher duty of the imported raw materials, the manufacturers pay only the lower duty that is assigned to the finished product. Some of those final products like electronics and pharmaceuticals aren’t subject to US tariffs, so are not taxed at all when they officially enter the US. Other manufactured products, automobiles, for example, still are subject to US tariffs. A US automaker that operates inside a foreign trade zone can import various parts — screws, for example, which would otherwise be subject to a 7% tariff — without paying the duties. As it passes through US Customs, the finished US-made automobile is subject to a duty of only 2.5%.

That’s a pretty good deal — but remember, thanks to Nafta, a car that is made in Mexico can enter the US duty free, which gives the Nafta-made car a 2.5% price advantage. Pascrell’s legislation was simply aimed at keeping jobs in the United States by giving the US-based manufacturers that operate in foreign trade zones the same duty-free privileges as their competitors that operate in places like Mexico. “This is all about keeping American jobs in America” explains Will Berry, the president of the National Association of Foreign Trade Zones, which strongly supported Pascrell’s bill. In a July 12, 2008 editorial, the Wall Street Journal enthusiastically agreed. The editorial — headlined “A Democrat’s Good Idea — praised Pascrell for his good economic sense to propose cutting tariffs by way of “boosting US competitiveness and creating American jobs.”

That was last year.

This year, Pascrell has not re-introduced his proposal, and declined to be interviewed on it for this article. No other lawmaker has yet stepped forth to take Pascrell’s place. And even the Obama administration — famously headed by a new president who has vowed that he will do everything he can to keep American jobs at home — has shown no interest in doing anything to help preserve these particular American jobs.

What happened?

*** Continue reading →