Download "The New "Catfish" War: United States v. Vietnam"

Anbinh Phan, Woodrow Wilson School of Public Policy and International Affairs
The New “Catfish” War: United States v. Vietnam
Implications of US Trade Policy in Vietnam
Executive Summary
Trade wars between the United States and Vietnam accelerate as catfish farmers in the
Southern region of the US lose sizeable business to catfish farmers in Vietnam. In
response, food-labeling practices now differentiate “Made in Vietnam” catfish.
US
farmers run ads and claim that the fish grown in the Mekong Delta in Vietnam are raised
under unsanitary conditions and are possibly contaminated with a chemical agent used
during the Vietnam War: Agent Orange. In addition, the US farmers contend that the
Vietnamese state subsidizes its farmers, thereby lowering the prices of catfish enabling
“dumping” in the US market and decreasing profits for thousands of Mississippi farmers.
In accordance with the anti-dumping suit filed on June 28, 2001, by the United States
Association of Catfish Farmers of America (CFA), a group representing the Mississippi
Delta Farmers, to the International Trade Committee and the US Department of
Commerce against the frozen catfish from Vietnam; and in response to the 2001 US
Senate law forcing Vietnamese exporters to label their catfish- ‘Tra’ or ‘Basa’- a similar
subspecies, the Vietnamese government is crying fowl against American trade policy.
Where The Trade War Begins: Entry Into The US Catfish Market
After two decades, the US embargo to Vietnam was lifted in 1995. On December 10,
2001, the United States and Vietnam signed a bilateral trade agreement (BTA) that
formalized a preferential trading status. Since the BTA was enacted, trade from both
sides increased and punitive tariffs have been slashed. Today, Vietnam exports nearly
$1.6 billion worth of shoes, textiles, shrimp, catfish and other commodities to the United
States and the United States exports $500 million in cotton, fertilizer and air pumps
(Chapman).
1
In the United States catfish has gained considerable popularity. Most of the catfish is
raised in Mississippi, Arkansas and Louisiana in ponds, resulting in leaner and healthier
catfish. In the mid 1980s, mainly the poor consumed the good. However with new pond
farming techniques, today Americans eat 300 million pounds of catfish (Chapman). As a
result of the BTA, Vietnam entered the frozen catfish filet market and captured a sizeable
share.
In June 28, 2002 the U.S. Association of Catfish Farmers of America (CFA) filed a
lawsuit with the International Trade Committee and US Department of Commerce
against the pricing of frozen catfish from Vietnam. U.S. producers complained that they
were losing market share to Vietnamese catfish and the CFA accused 52 Vietnamese
businesses of ruining the U.S. catfish market. As it could not compete with low-priced
catfish imports from Vietnam, the US producers were forced to accept losses.
Food Labeling Claims
At first, the US responded by claiming that the catfish from Vietnam was poor quality
and not of the same species. In response, in 2001 the US Senate passed a law, supported
by Senator Trent Lott (R- Mississippi), and the Food and Drug Administration was asked
to label the Vietnamese catfish under the different names of ‘Tra’ and ‘Basa.’ In recent
years catfish was also specifically labeled “Made in Vietnam” so that American
consumers could distinguish it from domestically grown catfish.
Furthermore, the United States advertisers and Members of Congress claimed that the
catfish raised in Vietnam is an entirely different in quality because of the murky waters of
the Mekong Delta and its freedom to roam and eat as it pleases. This is in comparison to
the catfish that are raised in sanitary ponds in the US.
The difference in raising
techniques is the basis for the food labeling legislation. Now even after changes in food
labeling, and since Vietnamese imports continue to sell well in the domestic market, the
United States contends that catfish breeders are unfairly “dumping” their products in the
US.
2
Anti-dumping Claims
Under the anti-dumping argument, the US claims that Vietnamese catfish markets are
heavily subsidized by the government and that the true cost of producing catfish is
therefore not reflected in the prices sold to the US. While it is true that the catfish
industry receives loans form the government, this per se does not make production much
cheaper, but due to bureaucracy and market distortions, perhaps even more expensive.
The Vietnamese must prove that the catfish industry is operating under free market
mechanism and not state subsidized.
Vietnamese catfish farmers say their lower production costs, including low labor costs,
allow them to offer fish at a competitive rate, but the CFA charges that Vietnamese
producers have been dumping "low quality" catfish in clear violation of President George
W. Bush's Farm Security Act” (Inter Press Service). The catfish farmers are upset
because the “inferior” quality catfish are flooding the US market, driving prices down.
On January 23rd, 2003 the Department of Commerce agreed to raise tariff on Vietnamese
catfish (which will be discussed in the Economic Analysis section).
Vietnamese Response
Overall, the Vietnamese claim that their fish are fresh and breed in sanitary conditions.
Their prices, they say, are twenty percent lower because of lower labor costs and feed
costs and the fact that the breeding grounds are better in the region (Byrd). Vietnam has
agreed to allow a change in the food label name and the additional labeling of “Made in
Vietnam.” The US continues to launch campaigns to keep catfish consumption domestic.
The Implications For Food Labeling:
Labeling laws in the United States are designed to provide consumers with adequate
information in markets where there is imperfect or asymmetrical information, as such
“Government intervention in labeling in the United States has served three main
purposes: to ensure fair competition among producers, to increase consumers’ access to
3
information, and to reduce risks to individual consumer safety and health” (Hadden, 1986
from Golan et. al.). Food labeling is a useful way for consumers to distinguish between
product qualities.
There are several kinds of food labeling, but ‘country of origin’ labeling is the most
applicable and under contention in the catfish wars. The Catfish Farmers of America ran
an ad that read: “Never trust a catfish with a foreign accent. They’ve grown up flapping
around in Third World rivers and dining on whatever they can get their fins on” and
Vietnamese producers were accused of misleading consumers to believe their catfish
were American by labeling their catfish “Delta Fresh” or “Cajun Delight Catfish”
(Chapman).
Since food-labeling practices can be a form of protectionism or
misinformation, it is important that food labels are accurate and verifiable.
A Precedence For Food-labeling in Fish: Peru v. EC, Dispute Settlement 231, 2002
Although food labeling is not considered under the WTO sanitary and phytosanitary
standards, it is recognized under the Technical Barriers to Trade (TBT). The Vietnam vs.
US case is a food labeling case very similar to the Peru vs. EC case on the labeling of
sardines. In the European Communities, Appellant v. Peru, Appellee case with Canada,
Chile, Ecuador, United States, Venezuela as third participants in a panel dispute
established in July 2001 and ruled on September 2002 in favor of Peru. This dispute
contested the name under certain species of fish could be labeled and marketed in the
European Communities. The EC claimed that certain species of sardines from Peru were
not identical to those from the EC and established a marketing standard for preserved
sardines. Before the Panel, Peru argued that the EC Regulation is inconsistent with
Articles 2.4, 2.2 and 2.11 of the Agreement on Technical Barriers to Trade (the
TBT: 2.1 Members shall ensure that in respect of technical regulations, products imported from the
territory of any Member shall be accorded treatment no less favorable than that accorded to like
products of national origin and to like products originating in any other country.
1
2.2 Members shall ensure that technical regulations are not prepared, adopted or applied with a
view to or with the effect of creating unnecessary obstacles to international trade. For this purpose,
technical regulations shall not be more trade-restrictive than necessary to fulfill a legitimate
4
"TBT Agreement ") and Article III: 4 of the General Agreement on Tariffs and Trade
1994 (the "GATT 1994"). The Panel found that the EC Regulation is inconsistent with
Article 2.4 of the TBT Agreement. The Panel recommended that the Dispute Settlement
Body required that the EC conform to its obligations under the TBT Agreement.
When is Labeling Appropriate?
Labeling is appropriate when consumer preferences differ. In the case of the catfish wars
there is evidence that consumers may prefer homegrown catfish.
Although this
preference may be induced by the heavy campaigns of the CFA, it is still appropriate to
label for geographical trademarks and allow consumer choice based on adequate and full
information. However, it is misleading to claim that catfish in Vietnam are “unsanitary”
when the FDA has no verifiable evidence for these claims and as such additional
information on product use does not necessarily enhance safety. The costs of this food
labeling will increase cost of catfish consumption for consumers and benefit domestic
producers. Since the private sector has a vested interest in this market, it is difficult for
the government (DOC) to fairly establish a standard (Golan, 24).
To appease the US, Vietnam has already agreed to a quota system. For labeling practices
is not always appropriate and in some cases “bans, quotas, production regulations or
standards and Pigouvian taxes may all be more successful than mandatory labels in
objective, taking account of the risks non-fulfillment would create. Such legitimate objectives are,
inter alia: national security requirements; the prevention of deceptive practices; protection of
human health or safety, animal or plant life or health, or the environment. In assessing such risks,
relevant elements of consideration are, inter alia: available scientific and technical information,
related processing technology or intended end-uses of products.
2.4 Where technical regulations are required and relevant international standards exist or their
completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their
technical regulations except when such international standards or relevant parts would be an
ineffective or inappropriate means for the fulfillment of the legitimate objectives pursued, for
instance because of fundamental climatic or geographical factors or fundamental technological
problems.
5
adjusting consumption and production to better match social optimum levels” (Golan,
15).
Economics Analysis: Consumer Lose and Domestic Producers Win
United States
Before 2001, the US was the largest importer of Vietnamese catfish, importing 13,500
tons worth an estimated $ 38.3 million in 2001 and 18,300 tons worth $55.1 million
between January and November 2002 (Financial Times). The US currently buys 30
percent of Vietnam’s processed catfish (Montlake) and Vietnamese exporters captured
20% of $590 million-$600 million US's frozen catfish fillet market. Vietnam sells over
$2 billion of catfish worldwide, an industry that employs between 300,000 and 400,000
people (Alden). In 2001, the US imported 8.2 million pounds of catfish filet. Due to
increasing demand, this number was expected to double in 2002.
US farmers believe that their pond methods of farming are the reason for this increase in
demand. They are frustrated because the “inferior” Vietnamese catfish is entering US
markets under the guise of being pond grown. Due to this increase in supply of catfish
from Vietnam, the profits for catfish farmers are being driven down from 80 cents per
pound to 55 cents per pound. Farmers in the Mississippi are breaking even where they
once made profits:
Previously, the US tried to decrease the demand on Vietnamese catfish by labeling it
differently, and secondly by running ad campaigns. Most recently, the Catfish Farmers
of America filed an anti-dumping suit and on January 27, 2003 the DOC made an initial
finding that Vietnamese farmers had “dumped “ catfish at below-market prices. The
DOC recommended import duties ranging from 38% to 64% on frozen fish fillets.
However, on February 28, 2003 it decided to cut the duties, explaining that its previous
calculations, which were based on figures from India-which has higher production costs
then even does the US, were incorrect. Even with the tariffs established in February,
Vietnamese exporters cannot afford to ship catfish.
6
Vietnam
Since, Vietnam is one of Asia’s poorest countries, losing its market share and or the fall
of prices of catfish in the United States will have extreme adverse effects on farmers in
the Mekong Delta and in the overall economy.
As of April 3rd, 2003, the Vietnamese in an effort to end the nine-month dispute, the
Vietnam Association of Seafood Exporters and Producers (VASEP) agreed that it would
place a quota on its basa and tra fish.
The Vietnamese producers and exporters'
representative propose slashing shipment volumes in 2003 to 90%, 95% in 2004 and will
be lifted in 2005, with penalties for exceeding quota before then (Associated Press).
Andrew Foreman, president of Infinity Seafoods Inc., believes that the DOC tariffs will
exacerbate the problems, “Its going to drive a wedge further into the consumers down
South that already have a hard time swallowing the price of domestic catfish,” Forman
said. “It’s only going to force people to buy Vietnamese even more.” (Byrd) The
increase in the costs of food labeling will be born by the consumers.
Strategies and Politics: The Bilateral Trade Agreement and WTO Ascension
United States
The United States Catfish Farmers of America (CFA) are a strong lobby. Among the
greatest supporters of the CFA are Senator Trent Lott who helped to pass the 2001
labeling law of catfish as ‘Tra’ or ‘Basa’ and Representative Marion Berry (D. Arkansas)
who boldly claimed that the catfish from Vietnam were contaminated with Agent Orange.
The economic rejuvenation is vital to constituents in this region. Since catfish farming in
ponds is a profitable business, politicians from the Southern region, where catfish is
mostly grown, want to protect this industry. Imports from Vietnam lower the price of
imports. Overall, to appease their constituency and especially the Catfish Farmers of
7
America Association both Republicans and Democrats want Vietnamese Catfish imports
to enter with high tariffs.
There are those who want to uphold the newly established Bilateral Trade Agreement
between the countries and have taken a stance against the claims that Vietnamese catfish
is unsanitary. Congressmen Phil Gramm (R- Texas) and Senator John McCain (RArizona) both agree that catfish from Vietnam is safe for consumption and consider the
fish similar since the Food and Drug Administration reported, “fisheries experts say the
look and taste (of the catfish) are similar.” It is advisable to maintain these relationships.
Vietnam
The Vietnamese feel that the United States has violated the spirit of the bilateral trade
agreement (equal and fair trade). Through opening its markets to trade, those pressing for
further reform gained political strength.
According to research by Professor Christina
Davis of Princeton University, “Movement toward free trade brought by the bilateral
trade agreements and WTO accession are causing internal changes - both reducing
poverty and changing economic regulations to create a zone with more freedom and
transparency for the private sector. The efforts to comply with the market opening
commitments of the U.S.-Vietnam bilateral trade agreement (including provisions for
Intellectual Property Rights, service, and investment rules as well as market access)
represented a revolution in the way Vietnam ran the economy. These gains in trade were
strengthening the hands of the pro-reform segments in government, and such setbacks as
the catfish dispute gave further fuel to those opposing reforms.” In addition, many
farmers are taking out loans and going into debt on the hopes of making a profit, and the
loss of the US market due to protectionism measures may leave these venture capitalists
in ruin.
In another approach the Vietnamese can benefit from this trade war, because if it can
prove that it is using market mechanism in its economy, it can gain credibility for
accession into the WTO. The bilateral trade agreement is believed to be the first big step
8
into Vietnamese accession to the WTO (perhaps by 2005). If Vietnam can resolve this
dispute it lends it credibility for adherence to the bilateral trade agreement.
Prices of Vietnamese catfish are falling. Local processors are buying less catfish and the
crop is not bringing in as much profit as it did formerly. The Vietnamese feel that this is
due not to over production, but to US protectionism. Losing this market share will hurt
thousands of the poorest farmers along the Mekong Delta and may strengthen the
position of Communist hard liners opposed to open markets. This effect may turn out to
be the most devastating for a country on the verge of economic and political reform.
9
Sources:
Armstrong, David, “US Accuses Vietnam of Dumping Catfish on the American Market”
February 8, 2003, The San Francisco Chronicle
Associated Press, “Vietnam Proposes Measures to Settle Catfish Dispute With US,” April
4, 2003, Compiled by the Associated Press State and Local Wire
Alden, Edward, “US and Vietnam in Catfish Spat,” January 28, 2003, The Financial
Times (London)
Byrd, Sheila, “Catfish farmers Pleased with Commerce Department Ruling,” January 28,
2003, The Associated Press State & Local Wire
Chapman, Dan, “Tangle; US, Vietnam Fight trade war over down-home delicacy,”
December 11, 2002, The Atlanta Journal-Constitution, Atlanta & the World
Caswell, Julie A. and Neal H. Hooker and, “A Framework for Evaluating Non-Tariff
Barriers to Trade Related to Sanitary and Phytosanitary Regulation” 1999, Journal of
Agricultural Economics, 50(2): 234-246
Caswell, Julie A. (ed.), “Economics of Food Safety.” 1991. Elsevier, New York.
Davis, Christina, Assistant Professor at the Department of Politics and the Woodrow
Wilson School of Public and International Affairs of Princeton University, focus on
international relations and comparative politics, with a focus on trade policy
Mojduszka, Eliza M., “Food Quality Standards in domestic and international markets:
Issues and Implications for East European Countries,” 2001. Department of Agricultural,
Food and Resource Economics, Rutgers University
Montlake, Simon “Catfish Row Could Hurt US-Vietnam Ties” March 12, 2003, The
Christian Science Publishing Society, Christian Science Monitor (Boston, MA)
Mydans, Seth, “Americans and Vietnamese Fighting Over Catfish” November 5, 2002,
The New York Times Company, The New York Times
Pham, Huyen and Van Pham, “Fish Business On Vietnamese Trade” February 25, 2003,
The San Diego Union-Tribune
Rowse, Ben “Anniversary of US-Vietnam Trade Pact Marred by Catfish Dispute”
December 8, 2002, Agence France Presse
Van, Hong “DOC Inspects Catfish Farming in An Giang” March 18, 2003, Financial
Times Information, The Saigon Times Daily
10
Various, “Vietnam Looks to Brighter Future with BTA, Un-encumbered By Catfish
Conflict” March 11, 2003, Financial Times Information, Asia- Africa Newswire,
Vietnam News Brief
Various, “Vietnamese Catfish Enjoy Zero Tariff in Australia,” March 11, 2003, Asia
Pulse Pte Limited
Word Trade Organization Website: www.wto.org, Peru v. US, DS 231, Sardines, and
Technical Barriers to Trade
11
Appendix
Suggested Policy Recommendations Food Labeling
1.
2.
3.
4.
5.
Under Technical Barriers to Trade the United States has the burden of proof to
determine if the Vietnamese catfish are in fact different but related sub-species.
Although Vietnam has yet to gain accession to the WTO, it is advisable for the
Vietnamese government to apply the Peru vs. Sardines (DS 231) case as a
precedent to ensure efficacy in food labeling practices.
According to this case, and since there is evidence that the Vietnamese catfish is
biologically similar to those farmed in the United States the Senate 2001 ruling on
the labeling of catfish as ‘Tra’ and ‘Basa’ should be appealed.
In adherence with bilateral trade requirements and in order to gain ascension to
the WTO, the Vietnamese government should work to ensure that Vietnamese
catfish do meet Food and Drug Administration (FDA) standards on ensuring
hygiene and quality of catfish for export. Vietnam should use services of the
US Oceanic Fishery Department (OFD) to train Vietnamese officials in
managing and using marine resources. This includes training and information
regarding US fishery laws and regulations and procedures to export aquatic
products to the US.
For purposes of consumer information and preference, the Vietnamese should
comply with US requirements for stamping of geographical trademarks.
In the long-run Vietnam should diversify its export market. In Australia there is a
zero import tariff on seafood products. The Vietnamese Trade mission in
Australia should work to increase exports to this and similar markets.
12