09/26/1997
The Wall Street Journal
Page A23
(Copyright (c) 1997, Dow Jones & Company, Inc.)

By Greg Rushford

To understand the ramifications of the acrimonious trade war that U.S. salmon farmers have launched against Chile, just bite into the case slowly, as if you're tucking into some poached salmon. But keep alert for the political and legal bones.

Chile stands accused of "unfairly" dumping salmon in U.S. markets. But what is really unfair about this case are the U.S. antidumping laws -- and the lengths to which protectionist U.S. officials will go to stick it to foreigners. As usual in antidumping cases, U.S. consumers will end up paying the bill.

Chile is proud to be Latin America's strongest bastion of free trade, a prime example of which is its success in exporting considerable numbers of "Atlantic" salmon, which farmers grow in pens sunk along bays in the ocean. Chilean salmon exports to the U.S. shot up from $46.5 million in 1994 to more than $111 million last year, about 45% of the U.S. market.

Chile is able to sell whole, dressed salmon (the fish cleaned, but with heads and tails) in U.S. markets at prices roughly 10% less than can farmers from Maine and Washington state. And Chile can debone and sell its salmon fillets some 25% cheaper.

To Chileans, this is evidence of comparative advantage: Chile's lower labor rates, constant mild ocean temperatures, and relative freedom from burdensome environmental regulations.

But U.S. salmon farmers have another kind of advantage. The antidumping petition drawn up by Washington international-trade lawyer Michael Coursey threatens to close U.S. markets to Chilean salmon by slapping on 42% tariffs. The suit also accuses the Chilean government of illegally subsidizing its salmon industry; if the U.S. Commerce Department agrees, countervailing duties -- in addition to the higher tariffs -- will be imposed.

Mr. Coursey's clients are eight companies in Maine and Washington that employ about 440 people. While the U.S. salmon farmers' profits in 1996 were $5.6 million, that was a 37% decline from two years earlier. "Without the relief of the U.S. trade laws, this domestic industry will perish," he insists.

Chileans have reason to fear Mr. Coursey's legal talents. Seven years ago he hit Norway with a similar antidumping case that has effectively removed Scandinavian salmon from U.S. dinner plates. (This partly explains Chile's dramatic increase in U.S. market share.)

The heart of Mr. Coursey's case is his claim that Chileans have been selling salmon 42% below their costs of production. If that's true, last year Chile "unfairly" dumped about $163 million worth of salmon in U.S. markets for $111 million. The suit further alleges that Chilean salmon exporters' sales to their other principal markets, Brazil and Japan, were also below cost.

Is the Chilean salmon industry rich (or dumb) enough to lose such sums? No. But to officials at the U.S. Commerce Department who administer U.S. antidumping laws, it is entirely reasonable to assume that Chilean salmon is sold everywhere at a loss. By so doing, the bureaucrats are free to use what they call "constructed value" to guesstimate Chile's costs of production. Chile will almost certainly be adjudged guilty.

All antidumping cases must define the industry that the petitioners represent. This has been a tad difficult since the U.S. salmon industry is split over whether there should be a dumping case. Americans who produce fillets and want to buy their fish at the lowest possible prices are vehemently opposed to the U.S. salmon farmers' position.

To fix this "problem," U.S. International Trade Commission Chairwoman Marcia Miller absurdly contends that the Americans who buy whole fish and then produce fillets are not in the same industry as the salmon farmers. Yet in the very same document, she defines the U.S. salmon industry as including producers of both whole fresh fish and cut forms, like fillets. By defining fillet producers out of the industry, bureaucrats can ignore their views and offer trade protection to the farmers. Ms. Miller declines comment.

More contradictory rationales surface when the ITC tries to define the product. While it insists that U.S. fillet producers are not in the industry, it agrees with the Commerce Department, which says fillets and whole fish are the same product -- reversing the position it took when Norwegian salmon were at issue. Only trade lawyers can find such logic logical.

Washington lawyers Lawrence Schneider and Michael Shor, arguing the case on behalf of the Association of Chilean Salmon and Trout Producers, contend that there is a difference between whole dressed salmon, which is sold to gourmet restaurants, and fillets, which are sold directly to consumers in grocery stores and national restaurant chains. As roughly 60% of Chilean salmon enters the U.S. as fillets, big bucks would turn on getting fillets removed from the case. The National Restaurant Association maintains that its members depend upon the ready-to-serve fillets and are not equipped to process whole, dressed salmon.

As for the threat of countervailing duties, today, in Geneva, Chilean officials will argue before the World Trade Organization that the allegations of subsidies are baseless. Some of the "subsidies," Chile contends, are programs -- like a debt-equity swap to reduce its foreign debt -- that the U.S. government first recommended. If Santiago and Washington do not reach an agreement, Chile will argue its case next year before a formal WTO dispute-resolution panel.

Offended by the basic unfairness of the process, Chile's minister of economy, Alvaro Garcia, has complained to U.S. Secretary of Commerce William Daley. Foreign Minister Jose Miguel Insulza has also protested to Secretary of State Madeleine Albright. For the foreseeable future, Chilean officials say, every time any representative of their government meets with any U.S. official, they will talk salmon.

Speaking from the point of view of U.S. interests -- never mind whether Chile is treated fairly or not -- even isolationist Americans must admit that it's the broader public interest that U.S. antidumping laws ignore. For restaurateurs and fillet producers, such protectionism raises prices, and damps business, employment and growth. Meanwhile, U.S. consumers can expect soon to pay more for their salmon. That's the hardest bone to swallow.

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