Protectionism and Trade

Protectionism and Trade

U.S. government favoritism has hurt Vietnamese shrimp farmers.
On the outskirts of the Mekong Delta, sitting in his modest home that doubles as a community store, Hein Le was not exuding optimism.

"There is a 95% chance I don't give it another try this year," he stated with his mother, wife, and two young daughters looking on. "I just don't see this problem going away."

The odds he was placing were on whether or not he would attempt to cultivate shrimp on the small ½ hectare plot he had bought for that purpose in 2004. The problem he referred to was a dumping lawsuit won by U.S. shrimpers that same year.

This lawsuit, settled in the Bush Administration's Department of Commerce, paved the way for punitive tariffs on Vietnamese shrimp that would ultimately drive people like Hein Le out of business. With the tariffs in place, at an initial rate of 93% and still effective today at rates as high as 25%, demand for his shrimp dried up. After two attempts at farming shrimp without recouping his basic expenses, he threw in the towel and his land has sat idle ever since.

For those unfamiliar with the term "dumping" it is probably best to start with a definition of the word. But this is a more complicated task than simply picking up a dictionary.

Dumping - What is it?

The U.S. Department of Commerce states: "Dumping occurs when imported merchandise is sold in the US at less than the normal value of the merchandise or at a price that is below the foreign company's cost of production." But what is "normal value"? And why would foreign firms want to sell their goods for less than this price?

Normal value, a deliberately arbitrary term, is usually defined as the price at which firms sell their products within their own domestic markets. The question that follows is why would a company sell their products abroad for less than they could at home, or, as the DOC states, even for an outright loss? Don't individuals start businesses to make money, not lose it?

"Dumping occurs when imported merchandise is sold in the US at less than the normal value of the merchandise or at a price that is below the foreign company's cost of production."
This gets to the heart of the lawsuit and anti-dumping laws in general. Anti-dumping laws exist to prevent foreign firms from maliciously taking losses on their sales abroad. In the case of Vietnam, the U.S. based Southern Shrimp Alliance convinced the DOC that shrimp farmers in Vietnam were deliberately taking losses in order to run U.S. shrimpers out of business. Actually, not only Vietnamese shrimp farmers, but also those from India, China, Thailand, Brazil, and Ecuador were guilty of dumping. As the theory goes, once shrimp farmers in these countries succeed in driving their U.S. competitors under, they would then raise their prices for huge profits.

Not only is such a risky business scheme farfetched, it's downright impossible. The claim that the countless individuals involved in the shrimp farming industry, who live on different continents, speak different languages, and often lack access to the internet or even phone lines could somehow coordinate their efforts to put U.S. shrimpers out of business is absurd. As Coastal Georgia College professor of economics Donald Mathews put it: "This is a whopper of a conspiracy theory. It is an unbelievable conspiracy theory."

Even ignoring the collusion accusations, on an individual level the claim that farmers were intentionally taking losses is false. One need look no further than Hein Le. He went into business with the hopes of making enough money to build a brick house for his family. Hardly an endeavor that involves losing money.

But not only is the theory behind dumping obtuse, the calculations that go into proving that dumping is occurring are equally bizarre. Let's look at "normal value," the price used to determine if people like Hein were selling their shrimp below cost. How was this calculated for Vietnamese shrimp?

The first choice to compute "normal value" is to use the cost that businesses sell their products in their own country. But this posed a problem for the DOC, for while Vietnam exports frozen shrimp to the States, only fresh shrimp is sold within the country. To get around this hurdle the DOC decided to use a price from Bangladesh as the standard, a country better known for it's textiles than its crustaceans.

Secondly, Vietnam sells various types of shrimp to the U.S. at various prices, but only one "normal value" price was calculated for the lawsuit. Again, common sense was not allowed to get in the way of the lawsuit. Those Vietnamese shrimp that were more expensive than the "normal value" were ignored, while those that were less expensive were cited as evidence of dumping.

In the end by using prices of frozen shrimp from Bangladesh and ignoring higher-priced shrimp exports from Vietnam, the U.S. shrimpers won their case.

In light of all this absurdity, it should be clear the drop in prices that is squeezing the profit margins of American shrimpers is not due to dumping, but instead to good old-fashioned competition. Warm water climates and lower labor costs in these countries make aquatic farms profitable ventures that can turn out predictable numbers of shrimp. That is an advantage that U.S. trawlers, which comb the ocean bottom, simply do not have.

The emergence of shrimp farms in places like Vietnam means that more shrimp could be available on the U.S. market at a lower price, something American consumers are now being denied.

The Path Towards Freedom

While it would be hard for anyone to defend the anti-dumping lawsuit against Vietnam on the grounds presented above, others might feel sympathy for the tariffs as we are talking about trade with a communist nation. This is a government that is not a democracy, has a state-controlled press, and has jailed dissidents who are brave enough to criticize their government.

But walking around a city like Saigon you quickly realize that the underlying Marxist ideology that supposedly governs is quickly disappearing. The city bustles with people buying and selling products in private places of business and, instead of bicycles, an endless supply of scooters now jams the roads as proof of the rising economic tide.

Economic freedom, in the form of trade with the rest of the world, has opened the door to a broad range of freedoms that in the 1980's one would have thought impossible. But this newfound liberty is still fragile.
This newfound prosperity has given individuals their first foot on the ladder to ascend to a better life. But the gains are not only material. Sitting in cafes, you'll be approached by street vendors selling not only trinkets but also copies of newspapers and magazines from around the world. Likewise, internet cafes are packed with young Vietnamese students practicing their English with friends they've made in Los Angeles. It is truly a sight to behold.

Economic freedom, in the form of trade with the rest of the world, has opened the door to a broad range of freedoms that in the 1980's one would have thought impossible. But this newfound liberty is still fragile. It is largely dependent on international trade and in no way should be put at risk for a special interest group in search of profits through political favors.

This goes without mentioning that the tariffs are punishing the wrong people. First, it must be noted that those employed at the government-owned facilities are more likely to be hard-working people trying to feed their families rather than hard-line communists trying to oppress others. But it is also interesting to note that these government shrimp farms are not bearing the brunt of the tariffs.

At the government farm I recently visited it was business as usual. The manager did not seem to care much about the tariffs as the 20 plus aquatic farms he managed were still producing and sending shrimp to the processing plant located nearby.

Down the road at a privately run store that supplied 14-day-old shrimp to smaller farmers, this was not the case. Half of the owner's clientele, all privately-run ½ to 2 hectare plots, had gone out of business after the U.S anti-dumping tariffs had been put in place.

When the government shrimp exporters can't supply enough shrimp to satisfy international demand, their processing plants turn to the private markets. But, with the tariffs in place, U.S. demand dried up. The government farms still find markets for their shrimp in places like Japan, but the private farms are out of luck. In the Ben Tre province, the miles upon miles of small farm plots that have now dried up provide evidence of who is being affected.

It's Not Just Tariffs

Vietnam has been accused of dumping everything from shrimp, to bicycles, to catfish, to -- most recently -- shoes by Europe and/or the United States. Obviously, individuals in the country are better entrepreneurs than this statement would suggest. At work are lobbying efforts by businesses to shelter themselves from competition.

(c) FreeFoto.com
When dumping tariffs are not enough, politicians have made sure that businesses have many more tools at their disposal to help their industries.

In the U.S., thanks to the Byrd amendment, not only do the prices of their competitors' products increase, businesses also get to keep all the revenue raised by the tariffs. This was money that previously went to the U.S. Treasury but now ends up on corporate income statements. Talk about an incentive to file dumping lawsuits. (This practice was deemed illegal by the WTO and was recently repealed in the U.S. Congress but it will not be disappearing anytime soon. Companies will continue to reap these benefits until October 2007.)

Still other tricks exist. In 2002, Trent Lott, then Senate Majority Leader, helped preside over a bill for the benefit of catfish farmers in his home state of Missouri. This bill made it illegal to call catfish from Vietnam "catfish." Instead they had to be referred to as "Basa" or "Tra", its Vietnamese names, in hopes that American consumers would not recognize it.

Not only are American consumers paying higher prices, American taxpayers are stuck with the bill. The Southern Shrimp Alliance relied on hundreds of thousands of taxpayers' dollars for the case against Vietnam. Federal grants distributed to shrimpers for disaster relief, which could have gone to paying back wages or buying new equipment, instead paid for legal fees. According to BusinessWeek, a statement from the office of Governor Blanco of Louisiana said that it "was considered a more effective means of supporting the industry."

Inconsistency and Its Consequences

Almost all of this has happened under an administration that frequently references the benefits of globalization and trade. In this year's State of the Union address President Bush eloquently stated that the United States "will choose to build our prosperity by leading the world economy -- or shut ourselves off from trade and opportunity. In a complex and challenging time, the road of isolationism and protectionism may seem broad and inviting -- yet it ends in danger and decline."

Where is the leadership to back this rhetoric? The Southern Shrimp Alliance has recently petitioned for another increase in the anti-dumping tariffs that already protect their industry. What better way for the President to show that we are a nation turning away from protectionism than to personally step in and put an end to all this madness?

Hein Le doesn't know much about all these intricacies of U.S. politics, but there is one thing that is clear. He knows that he was put out of business, not because of bad weather or because his shrimp contracted a disease, but because the U.S. government made his product artificially more expensive. What a message for the world's largest market economy to send to a country breaking out of the shackles of communism.

In a testament to the backwardness of the dumping tariffs, directly behind where Hein is seated a new table can be seen. It is a small stand stacked with lotto tickets. After the failed attempts at shrimping he has turned to selling these to help make ends meet. For now, the brick house will have to wait.




Contributed by Peter Mork, an author for aWorldConnected. Reprinted with permission from aWorldConnected.

To read another Global Envision article about how globalization affects Vietnam, see Asians Fear Rising US Protectionism.



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