By James Wright, Senior Editor
Published on Friday, March 01 2013
Originally published in Seafood Business Magazine
Countervailing duties on imported shrimp could harm trade relations, might not help domestic industry
America’s favorite seafood is once again in the middle of an international trade conflict. This one pits U.S. fishermen and processors against seven foreign governments accused of giving shrimp exporters an unfair advantage, via subsidies, in a competitive market. Because when it comes to selling shrimp, price speaks loudest. And in a price battle between wild American shrimp and their pond-raised counterparts from Southeast Asia and South America, the domestic product almost always gets the short end of the stick.
Domestic shrimp companies cite an urgent need to protect the livelihoods of struggling harvesters and distributors from a crush of imports that dwarf their product in the marketplace by a 9-to-1 margin. The only way to level the playing field, they contend, is to seek tariff relief from the imports that have forced them to undercut their prices to compete or merely keep their businesses afloat. They’ve lost market share and jobs and fear the extinction of their proud, yet aging, industry.
“I’m looking to get out,” says Craig Wallis, a 60-year-old shrimp boat owner in Palacios, Texas, who’s worked Gulf of Mexico waters since 1975. Nearly all the money he brings in pays for fuel, labor and maintenance for his seven trawlers, some of which are in need of repairs. There might be 2 or 3 percent left over for him because of rising costs and prices that match what he was getting for his shrimp back in the 1980s. “I’ve had family members who want to be in the business, but I can’t with confidence say this business is going to be around — maybe it’s a business this country doesn’t need. There’s no doubt that [imports] are the No. 1 reason.”
The wheels for the latest legal maneuver were set in motion on Dec. 28, 2012, when the Coalition of Gulf Shrimp Industries (COGSI) filed a countervailing duty (CVD) petition against the United States’ top imported shrimp suppliers. Opponents say the move is pure protectionism and could harm U.S. relations with valued trading partners. Embrace the globalization of the seafood industry or perish, they argue, because nothing will stop the flow of shrimp into the U.S. market, even tariffs on shrimp imported from China, Ecuador, India, Indonesia, Malaysia, Thailand and Vietnam.
Duties could raise shrimp prices on restaurant menus and in supermarkets, all at a time when consumers are particularly price-sensitive. But many U.S. shrimp importers say punitive taxes on their businesses are hardly a cure for what ails the fishing fleet and its distressed supply chain.
“These cases are an enormous waste of resources. Regardless of where you fall on the spectrum, [a trade barrier] doesn’t really do what the domestic industry thinks it’s going to do,” says Matt Fass, president of seafood importer Maritime Products International (MPI) in Newport News, Va. “They want higher prices; they think that’s what’s going to save them.”
COGSI, which claims to represent the majority of the domestic shrimp industry, has made a strong-enough case thus far. Three weeks after its petition reached the U.S. International Trade Commission (ITC) and the Department of Commerce (DOC), the federal agencies found sufficient reason to investigate 117 of 133 alleged warm-water shrimp subsidy programs in the aforementioned countries.
“The Gulf shrimp community can compete with shrimp industries located anywhere in the world, but we can no longer compete with the deep pockets of foreign governments,” says Edward Hayes, legal counsel for COGSI and partner at New Orleans law firm Leake Anderson. There are 31 companies that belong to COGSI.
The subsidy allegations might not be difficult to prove in a court of law, some experts say, even though CVD suits against nonmarket economies are rare. Warren Connelly, partner of Washington, D.C., law firm Akin Gump, says even if subsidy programs are identified the relief provided won’t make “any difference whatsoever.”
Connelly is quick to point out that little has changed in shrimp import trends since 2009, the time period under federal investigation: U.S. shrimp imports have remained relatively flat, hovering between 1.1 billion pounds and 1.3 billion pounds, for the past eight years. In fact, U.S. shrimp imports declined 7 percent in 2012, as importers brought in 1.17 billion pounds, according to the National Oceanic and Atmospheric Administration’s Fisheries Service.
“Experience teaches that these allegations tend to be dramatically overstated, which is what you do if you’re the petitioners’ lawyers,” says Connelly, who represents Ecuador’s National Chamber of Aquaculture, a trade association of shrimp processors, and the government of Ecuador. “I suspect the subsidy margins are going to be low or nonexistent.”
Greg Rushford, editor and publisher of the online international trade journal The Rushford Report, agrees that tariff rates from CVD suits aren’t usually significant. He fears it’s not in the domestic industry’s best interests to pursue the case — a long-term niche-marketing strategy would be more productive, he argues.
“It’s just sad. The petition is so flimsy,” he says. “It’s a shakedown. They should have learned back in 2000 that they were 50 years out of date.”
There and back again
Shrimp importers have faced numerous trade barriers over the past decade. The most significant were duty rates, ranging from 4 percent to more than 100 percent, on imports from six Asian and Latin American nations. U.S. shrimp imports had just soared to unprecedented highs, rising from 848 million pounds in 2001 to 1.2 billion pounds only two years later.
The Southern Shrimp Alliance (SSA), representing shrimp companies from the Gulf of Mexico and southeast Atlantic coast, filed an antidumping petition with the federal government in 2003, claiming the imports were being sold at a price below the cost of production. They won.
John Williams, SSA executive director, says it was the right move at the time. “The amount of imports coming in was increasing exponentially, and our prices were dropping sharply,” he says. “When the case was filed, both leveled off.”
The now-defunct Byrd Amendment allowed for the collected tariff monies to be distributed to the petitioners. According to U.S. Customs and Border Protection (CBP) documents, $258,714,567 was awarded to shrimp fishermen and processors from 2005 to 2007, when Byrd (officially known as the Continued Dumping and Subsidy Offset Act of 2000) was dissolved after being repealed by Congress in late 2005.
National Fisheries Institute President John Connelly and many others wonder what exactly was done with those funds.
“That’s a lot of money that could have gone to improvements on boats, in manufacturing plants and marketing programs,” says Connelly. “And while everyone’s improving a bit, I think the general agreement is we didn’t see a quarter-billon [dollars] of improvements in capital infrastructure.”
Other critics aren’t as restrained. In a Jan. 18 op-ed column for the Raleigh News & Observer, Travis Larkin, president of The Seafood Exchange in Raleigh, N.C., argued that the domestic shrimp industry has done itself a disservice by failing to recognize the global nature of the seafood industry.
“Have we really gone from a country where entrepreneurs with a dream and willingness to sacrifice must now compete, not against other seafood companies, but well-dressed lawyers bent on suppressing trade rather than encouraging it?” he wrote. “Such tactics mock those who are willing to work hard because they have faith that only in America can you make it on the virtue of competition, not regulation.”
“I just see these guys looking for handouts,” adds Eric Bloom, president of Eastern Fish Co. in Teaneck, N.J. “I’m very disappointed in a U.S. industry that’s ceased to try to improve its own business. They won’t innovate anymore and they blame other people for not being able to compete.”
Bloom isn’t completely devoid of sympathy. While his company is one of the country’s leading importers of farmed shrimp from Central and South America as well as Asia, bringing in more than 60 million pounds annually, it’s also worked with domestic shrimp — or at least tried to. A few years ago Eastern attempted a wild American shrimp program for its retail customers but couldn’t secure enough product.
“I only needed a couple of truckloads, which is not a lot of volume,” he says, adding that a truckload is about 33,000 pounds. “And all my supermarket [customers] want sustainability programs from a third party. There isn’t one in the United States. They want food-safety inspections and [British Retail Consortium] certification. They don’t have them. I’ve never met a customer who wants U.S. shrimp because of the quality.”
Attorney Warren Connelly agrees. “[The Gulf shrimp harvesters] are losing their premium because they are not doing a good enough job of handling,” he says. “That’s the problem still. Everyone I talk to says this.”
David Veal, executive director of COGSI, says the failure-to-compete argument and other rhetoric only reinforces the coalition’s case, which he says is “very strong,” even though his group does not have financial records of overseas shrimp exporters alleged to have benefited from subsidy programs. (The SSA, acting as the Ad Hoc Shrimp Industry Committee, on Jan. 11 filed an entry of appearance to COGSI’s petition. Williams says the move was done to monitor the situation and to keep the rest of the industry involved.)
“It’s entirely possible that these subsidy programs could all exist and no firm would have ever taken advantage of them. Stranger things have happened, but not many,” says Veal. “If I had to bet, most of those are active programs or were at one time. They may have outlived their usefulness. We have subsidy programs in this country that come and go all the time.
“I think [importers] are entitled to have their opinion about how that [tariff] money was spent,” Veal says, adding that it was shared among “thousands” of recipients and that many of those dollars are still tied up in litigation. “It doesn’t mean the money was ill-spent. It’s the personal opinion of people who don’t have another argument.”
Kicked when down
Nobody could argue that the past decade has been easy for U.S. shrimp fishermen. Hurricane Katrina in 2005 and the Deepwater Horizon oil spill in 2010 are two flashpoint events that severely curtailed fishing and cast doubts throughout the supply chain about the product’s safety. Losing market share, even temporarily, had drastic effects on suppliers. The two disasters impacted the way their products were perceived in the marketplace.
The competition seized on the opportunities the supply shortages created. Domestic shrimp distributors say they were then cut out of their own supply chains by import prices they couldn’t match. Some took losses on sales to keep longtime customers.
“This underselling [of imported shrimp] has been getting worse since the oil spill in 2010,” Carson Kimbrough, president of Carson & Co., a shrimp processor in Bon Secour, Ala., testified at the ITC’s public conference on Jan. 18. “Foreign producers have used aggressive price undercutting to keep hold of the increased market share they seized while the domestic shrimp fishery was closed.”
Suppliers like Kimbrough begrudgingly turned to alternative sources out of necessity.
“We also process some imported shrimp,” Kimbrough testified. “We do this because our customers buy both domestic and imported shrimp for the same uses, and when they need to meet a lower price point, they demand that we satisfy that price point by supplying imports instead of domestic shrimp. I would like to be able to supply my customers with all domestic product, but if I can’t meet the price of imports in the market, I will lose those customers altogether.”
John Connelly of NFI points out that most of the domestic shrimp suppliers who testified before the ITC also rely on imported product.
“How does a company that relies on both survive by attacking a portion of its own supply source?” he asks. “[The United States is] and will remain an important market. But when we throw up roadblocks to companies that compete successfully it harms markets that want to export here. Trade is a two-way street. We get benefits, and exporters get benefits. When you harm one side of that equation, it creates an imbalance on the other side. The U.S. needs to be very careful about that.”
USA: Dysfunction junction
All of the importers that SeaFood Business contacted expressed some degree of concern about the image of the U.S. market and its attractiveness to suppliers around the world given the contentiousness and uncertainty inherent in its complex regulatory regime. Not only that, they feel that seafood buyers around the country don’t realize how complicated their business environment has become; the hoops they jump through are often unappreciated.
“People have a false sense that it’s a smooth operating climate but it’s anything but,” says Fass of MPI, who sits on a CBP advisory panel and is well schooled on the myriad regulations for shrimp importers. They have to contend with tariffs, bonds and deposits, all of which can tie up millions of dollars in capital.
“We’re the only country in the world with a retrospective [tariff] system: Pay a deposit, then pay duties down the road,” he says. “It’s completely dysfunctional. It’s always been that way, and the lawyers love it that way; they say you get more accurate duties. I’d argue every one of their points is wrong. Shrimp will find its way here.”
“The United States is so big it’s been getting away with this bad behavior for so many years,” adds Rushford. “I don’t know if the other countries will roll over or not.”
A final ITC determination is due by the end of July, but other sources say the CVD case could be drawn out until the end of this year. Some say the impacts of this issue go beyond shrimp.
“We’re going to be hit with retaliation,” says Fass. “This is a major case that will capture attention with our partners around the world.”
Veal of COGSI says the complaint is not only legitimate, but will help save an industry that’s important to the Gulf and South Atlantic.
“Beyond that, it’s important to the people of this country to remember that at some point, if we continue to export dollars in exchange for material goods, those dollars won’t be here anymore,” he says. “No country survives long as a net consumer.”
Email Senior Editor James Wright at email@example.com