CATFISH RULING: FISHY BUSINESS
By Huyen Pham and Van Pham
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.
The working definition of "Fair Value" can be found in Chapter 6 of the Antidumping manual referred to in the earlier post by Prof. T. Nguyen. For the purposes of dumping margin calculations, one of the following is used as "fair value":
1. Home country's product price; or
2. Some chosen third country's product price; or
3. A constructed cost of production using home input prices; or
4. A constructed cost of production using some chosen third country's input prices.
As the above suggests, the Commerce department has many degrees of freedom to construct a "fair value". The consensus among researchers studying this issue is that rulings over the past decade+ have been biased toward finding higher dumping margins. The evidence from these studies also suggests that there is a wide disconnect between antidumping determination and economic foundations. The literature on this is large. See below for some references.
-Van Pham
"Antidumping," by Bruce A. Blonigen, Thomas J. Prusa, NBER Working Paper No. w8398, July 2001.
"Antidumping 101: The Devilish Details of "Unfair Trade" Law," by Brink Lindsey and Daniel J. Ikenson, Cato Trade Policy Analysis No. 20, November 26, 2002.
"Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S. Exports," by Brink Lindsey and Daniel J. Ikenson, Cato Trade Policy Analysis No. 14, July 30, 2001.
"The U.S. Antidumping Law: Rhetoric versus Reality," Cato Trade Policy Analysis No. 7, August 16, 1999.
DOWN IN THE DUMPS, Richard Boltuck and Robert Litan eds., The Brookings Institution, 1991.
GLOBALIZATION AND ITS DISCONTENTS, by Joseph E. Stiglitz, W.W. Norton, 2002.
By Huyen Pham and Van Pham
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.
The working definition of "Fair Value" can be found in Chapter 6 of the Antidumping manual referred to in the earlier post by Prof. T. Nguyen. For the purposes of dumping margin calculations, one of the following is used as "fair value":
1. Home country's product price; or
2. Some chosen third country's product price; or
3. A constructed cost of production using home input prices; or
4. A constructed cost of production using some chosen third country's input prices.
As the above suggests, the Commerce department has many degrees of freedom to construct a "fair value". The consensus among researchers studying this issue is that rulings over the past decade+ have been biased toward finding higher dumping margins. The evidence from these studies also suggests that there is a wide disconnect between antidumping determination and economic foundations. The literature on this is large. See below for some references.
-Van Pham
"Antidumping," by Bruce A. Blonigen, Thomas J. Prusa, NBER Working Paper No. w8398, July 2001.
"Antidumping 101: The Devilish Details of "Unfair Trade" Law," by Brink Lindsey and Daniel J. Ikenson, Cato Trade Policy Analysis No. 20, November 26, 2002.
"Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S. Exports," by Brink Lindsey and Daniel J. Ikenson, Cato Trade Policy Analysis No. 14, July 30, 2001.
"The U.S. Antidumping Law: Rhetoric versus Reality," Cato Trade Policy Analysis No. 7, August 16, 1999.
DOWN IN THE DUMPS, Richard Boltuck and Robert Litan eds., The Brookings Institution, 1991.
GLOBALIZATION AND ITS DISCONTENTS, by Joseph E. Stiglitz, W.W. Norton, 2002.
