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SPEAKING FREELY
Catfish ruling: Fishy
business
By Huyen Pham and Van Pham
Speaking Freely is an Asia Times
Online feature that allows guest writers to have their
say. Please click here if you are
interested in contributing.
On January
27, only one year after the United States and Vietnam
began "normal trade relations", the US Department of
Commerce slapped the Vietnamese with a 64 percent import
tariff on their catfish, the margin at which Commerce
claims the catfish were illegally dumped in the US. But
when you look at the numbers, this ruling defies common
sense. The ruling is troubling to many of us in the
United States since it reinforces the perception that
our anti-dumping law is a sham.
Ostensibly, US
anti-dumping law is designed to protect against foreign
producers charging "unfairly" low prices. But American
scholars from respected quarters such as the Brookings
Institution, the Cato Institute, and the National Bureau
of Economic Research, including a Nobel laureate and
former chairman of the Council of Economic Advisors,
conclude that, in practice, the process is rigged to
find dumping even where none exists. In 2001, Commerce
found dumping in 94 percent of its cases.
Some
quick calculations in the catfish case show why
observers may be less than confident in Commerce's
fairness. Using one Commerce definition of dumping, the
64 percent tariff implies that Vietnamese producers sell
catfish to US distributors for 64 percent less than they
sell to Vietnamese distributors. But that doesn't add
up. In 2001, US distributors went to Vietnam and paid
US$1.41 a pound; using Commerce's 64 percent, Vietnamese
distributors must have paid $2.36. Let's say the catfish
gets marked up 25 percent to get from distributor to the
local fish market, so the Vietnamese consumer pays
(according to Commerce) $3 for a pound of catfish. But
the average Vietnamese gets paid only $8 a week. So
either the Vietnamese are fasting all week to have
catfish on Friday or Commerce's 64 percent is absurdly
high.
Commerce wouldn't have found dumping if it
had compared the import price with actual catfish prices
in Vietnam. Instead, Commerce compared the import price
with the cost of producing Vietnamese catfish. But
curiously, this cost was "constructed" using input costs
not in Vietnam, but in a "comparable" country of
Commerce's choosing. Commerce chose India.
But
the cost of producing things in India is higher than in
the United States, raising questions about how really
comparable India is to Vietnam. Sure, wages are low in
India, but outside of a few industries such as software,
worker productivity is also among the world's lowest. A
study at the San Francisco Federal Reserve found that
unit labor costs (or wages adjusted for productivity)
are slightly higher in India than in the US. In
contrast, unit labor costs in Vietnam, according to the
Economist Intelligence Unit, are 70 percent lower than
in the US. Higher labor costs mean higher prices. So
using input costs in India, it's no surprise Commerce's
"constructed" cost of producing catfish in Vietnam
exceeded the US import price by 64 percent, the extent
of the alleged dumping.
Consider another
implication of Commerce's ruling. If Vietnamese
producers were charging prices in the United States and
in Vietnam lower than cost, then these producers must be
losing money. If you use Commerce's 64 percent,
Vietnamese producers must have lost about $70 million in
2002 alone. According to Commerce, that's almost equal
to total sales of Vietnamese catfish outside the United
States and Vietnam. But how long could the Vietnamese
sustain such a loss? It's equally implausible that the
Vietnamese government is spending $70 million to
subsidize the losses of an industry that accounts for
just 1 percent of the country's exports. That subsidy
would amount to $200 per Vietnamese catfish worker -
seven times as much as public education spending per
student and 70 times the rate of public health spending
per person.
Commerce's ruling will result in
higher prices for US consumers and more retaliation
against US exporters, but the most significant fallout
is the damage to our credibility. The absurdity of this
ruling makes a mockery of US anti-dumping law. Vietnam
is suggesting we are not honoring the trade agreement we
signed. And coming on the heels of the decision last
March to raise trade barriers in steel, the world has
even more reason to question the United States'
commitment to free trade.
With the catfish,
there is still time. Commerce will issue a final ruling
this June. Removing the tariff on Vietnamese catfish
would show the world that US laws, treaties and
proclamations have meaning. It would also only be fair.
Huyen Pham is an
associate professor of legal research at the University
of Missouri Law School. Van Pham is an assistant
professor of economics at the University of Missouri
specializing in development and international economics.
Huyen and Van Pham are wife and husband.
Speaking Freely is an Asia Times Online
feature that allows guest writers to have their say.
Please click here if you are
interested in contributing.
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