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Associate Professor Binh Tran-Nam
Two years ago, when the US-Vietnam bilateral trade agreement (BTA) first became effective, I warned that, while tariffs would fall significantly across the board, more subtle forms of trade restrictions would come into play. Long-established forms of non-tariff barriers include product standards and anti-dumping regulations. This is exactly what happened in the case of the Vietnamese catfish (known as ca tra in Vietnam) trade.
Initially, some of Vietnam’s catfish exporting firms opportunistically copied the logo of catfish product from the southern US (mainly Louisiana and Texas) and used it on their own packages exported to the US. This understandably angered the US catfish producers who wished to protect their brand names, especially when the Vietnamese imported fish was much cheaper than the local counterpart. They successfully persuaded the US Congress to force Vietnam exporters to change the name of their product to ‘tra’ or ‘basa’.
However, local US producers were not satisfied with this small victory. After all, Vietnam’s basa exports had rapidly captured 20 per cent of the US catfish market following the implementation of the BTA. US farmers then hired a law firm with considerable experience in commercial disputes. As a result of the farmers’ suit, the US Department of Commerce (DOC) sent a trade mission in November 2002 to investigate the production of batra in Vietnam. After several weeks, this mission concluded that Vietnam was a non-market economy and that the export price was below the production cost. Based on this report, the US DOC decided to raise tariffs on Vietnam’s frozen batra fillets from 37 to 64 per cent (temporarily in Jan 2003, officially in June 2003 and effective in August 2003). The quasi-judicial US International Trade Commission (ITC) later upheld this ruling on 24 July 2003.
This was regrettable for a host of reasons. From an economic perspective, the ruling was not justified. The trade mission’s assertion that Vietnam was not a market economy was inaccurate, irrelevant and ad hoc. First, while Vietnam is not yet a fully-fledged market economy, the domestic batra market in Vietnam has many characteristics of a competitive market, in which the forces of supply and demand largely determine market outcomes. Secondly, from a purely theoretical standpoint, even though Vietnam is a non-market economy, the US and Vietnam can still engage in mutually beneficial trade. Thirdly, the label of a non-market economy can be conveniently applied to many transitional countries (including China and East European countries) with potentially harmful consequences for free trade.
The model and data used by the US Trade Commission for calculating Vietnam’s batra production costs were dubious at best. If its average cost estimate (about US$5.2/kg excluding profit markup) was indeed accurate, then the average person in Vietna would not be able to afford batra, which is incompatible with the fact it is a very ordinary food in Vietnam. Neither the Trade Commission nor the DOC could substantiate their allegations that the losses arising from subsidised exports of batra to the US were paid for by the Vietnamese government. The amount of the implied subsidy, estimated at US$70 million, would be illogically too large for the mere 350,000 workers employed in batra farms. And if the alleged subsidy is to continue, why does the DOC not let US consumers enjoy the generosity of the Vietnamese government?
The batra controversy is politically undesirable. Catfish, in terms of its trade volume and value, is in itself an insignificant trade commodity, but it is very symbolic. It reinforces the perception that the country with the greatest economy on earth which spends a fortune on subsidising its farming sector will, in the case of the catfish industry, allow a relatively small interest group to unduly influence its trade policy. It exposes the double standards of developed nations calling for global market access. In the world of tit for tat, it is very difficult to see how the US can continue to insist on further liberalisation of, and access to, Vietnam’s banking and telecommunication sectors.
This was primarily a politically motivated decision which, from a legal perspective, will set a very dangerous precedent, with adverse ramifications for freer flows of trade to the US. The ‘non-market economy’ and ‘suspected dumping’ arguments could be applied to a wide variety of goods from different exporting countries. This will encourage (inefficient) US producers to lobby against not only catfish from Vietnam, but any product from anywhere around the world. It sends the message that it pays to lobby, rather than to become more efficient. It promotes wasteful protectionism, not free trade.
This protectionist malady has already spread. On 24 July 2003 the US International Trade Commission also decided to impose higher tariffs on South Korean semiconductors. Further, after making complaints about the standard of imported shrimp, the Southern Shrimp Alliance on 31 December 2003 filed a formal anti-dumping complaint with the US DOC, requesting that the DOC launch an ‘investigation into certain frozen and canned warm-water shrimp from Brazil, China, Ecuador, India, Thailand and Vietnam’. US producers are apparently seeking tariffs as high as 267 per cent. According to Vietnamese statistics, in 2002 Vietnam’s shrimp exports to the US were worth a total US$467 million, compared with the US$55 million for batra shipments to the US. The economic welfare of many Vietnamese shrimp farmers is now at risk!
WATCHPOINT: Look out for progress in the investigation of anti-dumping complaints by US shrimp producers against exporters, including Vietnam.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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