The Indian Shrimp Industry Organizes to Fight the Threat of Anti-Dumping Action22/11/2010
This case study deals with the way in which the Indian shrimp industry responded when faced with an anti-dumping action in the United States. It also indicates the potential impact of the anti-dumping action on the fragmented, small-producers-dominated industry.
I. The case history
On 31 December 2003, the Ad Hoc Shrimp Trade Action Committee (ASTAC), an association of shrimp farmers in eight southern states of the United States, filed an anti-dumping petition against six countries — Brazil, China, Ecuador, India, Thailand and Vietnam. The petition alleged that these countries had dumped their shrimps in the US market. Though the actual petition was made by the Ad Hoc Shrimp Trade Action Committee, whose members are located in Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Texas, the Southern Shrimp Alliance (SSA) had been organizing the process of seeking redress.
The petition meeting statutory requirements, on 21 January 2004 the US Department of Commerce (DOC) announced the initiation of anti-dumping investigations against the six countries. Products covered include warm water shrimp, whether frozen or canned, wild caught (ocean harvested) or farm-raised (produced by aqua-culture), head-on or head-off, shell-on or peeled, tail-on or tail-off, deveined or not deveined, cooked or raw, or otherwise processed in frozen or canned form.
The Department notified the International Trade Commission (ITC) of its decision on initiation. On 17 February 2004 the International Trade Commission announced its decision that there was a reasonable indication that the US shrimp industry is materially injured or threatened with material injury by imports, allegedly at less than fair value, from the six identified countries. As a result, the Department of Commerce continued with its investigations and gave its preliminary determination on 28 July 2004. The ratio of preliminary duty varies between 3.56% and 27.49% for three mandatory respondents selected by the DOC. The weighted arranged rate for India is 14.2%, and the average rate for China is 49.09%, for Brazil 36.91%, for Vietnam 16.01%, for Ecuador 7.3% and for Thailand 6.39%.
II. The national and international context
The trouble had started much earlier than December 2003. On 26 February 2002, Reggie Dupre, a Louisiana state senator, alleged that tainted farm-raised Asian shrimp was being diverted from Europe and dumped on the US market. Dupre was calling for a congressional investigation into food safety and unfair pricing, as local fishermen voiced concern that imports had depressed the prices they got for the locally harvested shrimp. By September 2002, shrimp industry representatives from eight southern states had got together to fight the case against imported shrimp from certain countries. ‘We stand a better chance of success when all shrimp-producing states come on board’, as George Barisich, president of the United Commercial Fisherman’s Association, observed.
On 22 October 2002, representatives of the shrimp industry from the eight southern states voted to form the Southern Shrimp Alliance to fight unfair competition from imported farm-raised shrimp from certain countries. There was, however, a basic problem. It was estimated that it might cost more than US$3 million in terms of legal expenses to go for an anti-dumping petition.
There were also problems associated with divergent trade interests. Shrimp importers and distributors were afraid that a long-drawn-out battle would affect the supply of imported shrimp and adversely affect their business. Wally Stevens, president of the American Seafood Distributors Association, described how the salmon industry in Maine had filed an anti-dumping petition against Norway in 1990, hoping to stabilize prices. Twelve years after winning and spending up to $10 million, salmon was selling at half the price prevailing at the time of the beginning of the dispute. ‘This is definitely not the right way to go. It consumes an immense amount of money and is not a long-term solution in terms of maintaining viability.’ In a statement in January 2003, Stevens said that his organization, in support of ‘free and fair trade’, would oppose any anti-dumping action by the SSA.
In the meantime, countries threatened with the prospective action started reacting. Vietnam, one of the countries identified almost at the beginning of the SSA exercises and also highly dependent on the US market for shrimp exports, was the first to protest. Foreign Ministry spokeperson Phan Thuy Thanh said in a statement on 12 September 2002 that ‘I can say with certainty that Vietnam has never dumped its shrimp, and its shrimp have been sold at market prices.’ Thailand was another country to lodge a protest. Kenneth Pierce, of Willkie Farr & Gallagher, representing the Thai Frozen Foods Association, condemned the move to consider anti-dumping action against Thai shrimp exports. ‘Thailand’s shrimps have never been dumped in the United States, nor have they caused material damage to US shrimp’, he said in a statement on 25 November 2002. As evidence mounted of the SSA’s determination to go ahead with the petition on anti-dumping, other threatened countries also started taking preventive actions. Rokhmin Dahiri, the Indonesian Maritime and Fisheries Minister, denied allegations that the Indonesian government subsidized its shrimp farmers. He said in a statement on 25 August 2003 that the price of shrimp on the domestic market was much lower than the export price. The dumping charge was baseless and, therefore, the United States should exclude Indonesia from the proposed anti-dumping investigations. The government of Bangladesh took similar action, and Vietnam also started working out alliances. Nguyen Thi Hong Minh, Vietnamese Deputy Fisheries Minister, said in a statement on 4 August 2003 that the Vietnamese shrimp businesses and their counterparts in south-east Asia, India and China as well as US shrimp importers were considering measures including lobbying to prevent a lawsuit.
The Indian government and the Indian shrimp industry were aware of the threat. Arun Jaitley, the then Minister for Commerce, made a statement in June 2003 after his official visit to the United States: ‘We are anticipating an action against our shrimp exports because our share in the US market is on the rise.’ During the whole of 2003, the SSA went through the process of raising the required resources and trimming the number of countries against which dumping action was to be brought, as the cost of the legal battle increased with the number of countries. After a compromise with the Mexican shrimp industry, the number of countries was ultimately brought down to six.
The main contentions of the petitioners were as follows.
• The six named countries accounted for 74% of shrimp imports in the US market.
• Imports from the six countries increased from 466 million lb. in 2000 to 650 million lb in 2002.
• Import prices of the targeted countries had dropped by 28% in the previous three years. The average unit value of the targeted countries in 2000 was $3.54; this had fallen to $2.55 in 2002, on a headless, shell-on equivalent basis.
• The average dockside price for one count size of gulf shrimp dropped from $6.08 to $3.30 per pound from 2000 to 2002.
• The United States was the most open market in the world. High tariff rates in other large importing countries provided a powerful incentive for exporters to increase shrimp shipments to the United States. Likewise, the US market also served as the market of last resort when shrimp shipments were denied entry to other markets such as the European Union due to the discovery of unacceptable levels of contaminants.
III. The Indian shrimp industry and its response
The first concrete signal that India might be included in the US industry’s anti-dumping petition was received by the Indian government in June 2003. That anti-dumping investigations against Indian shrimp imports might be initiated was hinted at during bilateral talks when the then Commerce and Industry Minister Arun Jaitley had met his counterpart in Washington at that time. The reason given was that India’s shrimp exports to the United States had been rising rapidly during the previous three years, from $255.93 million during 2000-1 to $299.05 million during 2002-3.
India’s marine products industry has been one of the major export success stories. From an export base of just Rs. 450 million in 1971-2, it increased to Rs. 68,810 million in 2002-3. Shrimp is the mainstay of India’s marine product exports.
Japan has traditionally been the biggest export market for India’s marine products, followed by the United States, China and several EU countries. There was an over-dependence on the Japanese market, as shrimp is the major export item which Japan imports in huge volume. However, in the recent past, there has been a gradual decline in the intake from Japan with an increasing absorption in the United States, as well as some other countries. The United States, traditionally a buyer of small-sized shrimp from India, has now started buying many other varieties, including black tiger shrimp, resulting in its occupying the top slot in India’s export markets of marine products, replacing Japan in 2002-3.
Success in India’s shrimp export is directly attributable to the development of shrimp culture. Assisted by the Marine Products Export Development Authority (MPEDA), shrimp culture has developed as a major industry in several coastal states. It is mostly an enterprise of small and medium farmers, and has led to the utilization of otherwise unproductive areas in the coastal region, contributing to improvements in the socio-economic conditions of the rural poor in the shrimp farming areas. It has created direct employment of about 300, 000 people and indirect employment to over 700, 000.
The Indian government has played an important role in the promotion of marine product exports, including the development of shrimp farming. The MPEDA is a government-sponsored body whose mandate covers the development of the industry as a whole, including export promotion. It is under the administrative control of the Department of Commerce and is headed by a senior officer of the Indian Administrative Service. Its governing council comprises senior officials of the central and state governments as well as representatives of the marine products industry.
The Seafoods Exporters Association of India (SEAI) is the nodal body of the exporters community and is represented on the MPEDA governing council. There is, therefore, close co-ordination between these two bodies which are primarily responsible for organizing the shrimp industry’s as well as the government’s response to the US anti-dumping investigations.
After the statement of the Commerce Minister on the possible threat to Indian shrimp exports to the United States, these two bodies went into action. To explore the possibilities of avoiding the anti-dumping action and, if necessary, to take legal action, a delegation comprising senior members of the SEAI went to Washington in September 2003, and after discussions in various quarters, decided to sign an agreement with the law firm, Garvey Schubert and Barer, to be the counsel in the United States for the anti-dumping investigations. After returning to India, the SEAI informed its members through a circular letter that ‘Ms Lisbeth Levinson, a partner in the firm, will personally and exclusively handle our case.’
Regarding the extremely damaging potential of the proposed anti-dumping action, the SEAI pointed out to its members that in July 2003 the United States had imposed anti-dumping duty ranging from 44% to 63% on catfish fillet imports from Vietnam which would remain in force for five years. There will be annual reviews to decide whether the duties need any adjustments upwards or downwards. The Association warned its members that any such move against India’s shrimp exports would ring the death knell of the industry.
The Association also realized the importance of other related regulatory provisions for Indian shrimp exports to the United States. The SEAI informed its members that within twenty days of filing the case, the United States could start imposing anti-dumping duties which would be returned only if the Indian exporters won the case. Since this anti-dumping duty would have to be paid by the US importers, the SEAI cautioned that they might stay away from India, and therefore the business would start to become affected long before the case came to its final conclusion.
The game plan worked out by the MPEDA and the SEAI was comprehensive. It involved approaching the central government, developing contacts with counterpart bodies in other countries which might be named in the petition, and putting their house in order, to raise resources.
By October 2003, the plan had started taking shape. In a statement on 8 October 2003, K. Jose Cyriac, the chairman of the MPEDA, said, ‘We are discussing the issues with other countries which are likely to be labelled with dumping charges.’
The SEAI president, Abraham Tharakan, after describing the petition as extremely unfair, said that in addition to calling for government support it would seek to co-operate with major exporting associations in Vietnam, Thailand and China and to forge an alliance among the Asian exporters. Some twenty-five Indian companies export to the United States, and the industry anticipated that the case might be filed against six or seven big players. However, the SEAI decided to fight the case from the platform of the organization as a mark of solidarity.
‘We will back each indicted company’, said Ranjit Bhattacharye, secretary-general of the SEAI, whose management committee decided that it would defend the industry’s position, meet the cost of the legal process and not leave the cost to be borne by those Indian firms that might be selected for investigations.
The SEAI has estimated a total budgetary requirement of Rs. 70 million to fight the case. Of this, SEAI would mobilize Rs. 40 million internally and the remaining Rs 30 million would be collected from its members, depending on the volume and value of their individual exports to the US market.
When the initiation decision came on 21 January 2004, both the organizations were unhappy, but they were expecting it and were therefore ready to act. According to the SEAI, ‘with over 75% of the US producers having signed the petition, proceeding with the hearing was a fait accompli’.
Both Jose Cyriac and Abraham Tharakan left for the United States to take further action to protect the interests of the Indian shrimp exporters.
The SEAI had worked out plans to contest the dumping allegations on various grounds. It put forward two major differences between the Indian and the US sea-caught shrimp and offered reasons why Indian shrimp is cheaper.
First, there are specific variations between the shrimp caught off the south-west coast of the United States and in Indian waters, so that prices are bound to be different. ‘The threat for the domestic shrimp farmer in the United States comes from China, Thailand, Indonesia and Ecuador. India’s shrimp exports are predominantly of black tiger and scampi varieties which are not cultivated in the United States’, according to the president of SEAI.
Second, while fishing in the United States is a capital-intensive activity calling for major investment, in India shrimp capture is carried out with a very low level of capital and requiring hardly any investment. This makes the cost of production considerably lower in India compared with that for shrimp sea-caught off the US coast.
Jose Cyriac observed, after the decision to initiate investigations, that the cost of cultured and captured shrimp in India was far lower than that of shrimp caught and bought in the US market, enabling Indian exporters to compete with US shrimp in price. Further, the petition filed before the US Department of Commerce had mixed up count and weight (shrimp is sold by size and the number of shrimp constituting 1 kg), providing another avenue to contest the case.
When the ITC decision on the preliminary affirmative decision came on 17 February 2004, the Indian shrimp industry termed it ‘discriminatory and unjust’. Tharakan of the SEAI said, ‘We are deeply disappointed and upset by the verdict.’ Asserting that the Indian shrimp industry has not been resorting to dumping, he was confident of ultimate victory: ‘We have a strong case against US shrimpers. We are certain that we will win the case despite the setback.’ Tharakan said that there was no possibility of the United States succeeding in imposing an anti-dumping duty on Indian shrimp as it was not sold below the cost price. On the contrary, it was sold to US importers at a price higher than that for Japan and for other countries.
On receipt of the preliminary decision, Indian exporters who were mobilizing funds said that they would fight the case till the end. Jose Cyriac commented: ‘The government is unhappy with the US verdict. But it is only a preliminary finding. We will help the Indian exporters fight the case in the United States.’
The government itself came out with a statement on 18 February 2004, when S. N. Menon, special secretary in the Department of Commerce, said, ‘We will fight it out. We are all geared up to fight the case and the industry has already hired lawyers for this.’ Menon observed that India had a strong case as India was exporting mainly ‘tiger shrimps which are not found there and that too, in unprocessed form’. Noting that 80% of shrimp consumption in the United States is met through imports, Menon said that unprocessed Indian shrimps generated about 1 million jobs in the US food processing industry, therefore, any action against Indian shrimp would adversely affect the US food processing sector. The SEAI and its members were getting ready for the next set of actions. After the preliminary positive determination by the ITC, the next step was for the Department of Commerce (ITA) to prove whether there had been dumping and at what level. As part of that exercise, a few leading firms would be selected from each country and detailed questionnaires would be sent to them.
According to Sandu Joseph, the secretary of the SEAI, a team of US DOC officials would visit Kerala, a major shrimp producing state, in June or early July. ‘They will visit our shrimp farming factories and verify our accounting practices. Our factories and accounts are open. We want to prove that we are not producing and exporting cheap shrimp to the United States.’
Joseph also referred to the support the Association could mobilize in the United States. The SEAI had been receiving ‘favourable support’ from a group of US congressmen to fight the anti-dumping investigations. Joseph said that more than a dozen members of the Congress had written to US Commerce Secretary Donald Evans, asking him to use fair and reasonable procedures in the investigative process.
While the industry and the SEAI, as well as the Indian government, are fairly confident of the strength of their case, the biggest problem being faced by the shrimp exporters is the uncertainty caused by the anti-dumping investigations.
After the announcement of the preliminary ITC determination, Sandu Joseph commented that ‘We have been badly affected. There is no shrimp export happening to the US now.’ He said that Indian shrimp exporters had not received any export order from the United States since 17 February 2004.
By April 2004 there was widespread concern among the exporters, growers and other stakeholders. Shrimp exports to the United States had come almost to a standstill due to the uncertainty regarding the contingent applicability and incidence of the anti-dumping duty.
According to Joseph Zavier, general secretary of the Kerala Boat Owners Association, with almost insignificant exports to the United States since February the shrimp catch had been reduced by 40-45%. The price per kilogramme of white shrimps, Rs. 280 a few months previously, had crashed to Rs. 100 in April, while the price per kilogramme of another variety of prawn had fallen from Rs. 80 to Rs. 40.
In Tamil Nadu and Andhra Pradesh, two large southern states, shrimp farming is done in large barren areas converted into farms. Mohammad Nayeem, once a prosperous shrimp farmer in Andhra Pradesh, is now a broken man. He owns 100 acres of shrimp farm and used to sell the products at a price of Rs. 450-600 per kilogramme, but after the ITC decision the price had crashed to Rs. 220, while the cost of production was Rs. 250.
In Kerala, shrimp farming is mostly done in paddy fields, converted into shrimp farms, on the fringes of backwaters. According to Rajan P. Mambaly who is one of those who has given his land under lease for shrimp farming, the duty, if imposed, will hit him and the farmers hard, as the net price to the growers would come down to the extent of the anti-dumping duty.
The preliminary determination came on 28 July 2004. In a media briefing on 29 July 2004 the chairman of the MPEDA observed, ‘We are not happy with the preliminary determination of the duty rates. The final determination would be on 16 December 2004 and we will fight the case further and try to bring it down to zero level.’
The investigation has now moved into the final determination stage. As part of the procedure, DOC officials visited India in August-September 2004 for onsite verification of the information and data submitted by the mandatory respondents during the preliminary phase of the investigations.
India’s shrimp export to the United States came under difficulties before, when the United States banned the import of captured shrimp from certain countries, including India, in 1976. It was on the ground that trawling for shrimp by mechanized means had been adversely affecting certain varieties of sea turtles. The dispute on the US ban on the import of shrimp caught without using turtle extruder devices during harvesting was taken to the WTO Dispute Settlement system by the affected countries, including India. The WTO ruled against the United States and asked it to make the regime WTO-compatible. However, since that had not yet happened, India’s exports to the United States of aqua-culture shrimp and shrimp caught by non-mechanized means were being made on the basis of certification by the MPEDA, as required under the law.
The trade lobbyists in the United States, such as the Consuming Industries Trade Action Coalition (CITAC), the Seafood Distributors Association and others which were against the imposition of anti-dumping duties on imported shrimp, have raised the issue of the Continued Dumping or Subsidy Offset Act 2000, popularly known as the Byrd Amendment. They want the Act to be repealed or modified to make it WTO-compatible.
Under the Amendment, the US government distributes the anti-dumping and anti-subsidy duties to the US firms that brought forward the cases.
The Act was perceived to violate WTO rules by several countries. Eleven members of the WTO (Australia, Brazil, Canada, Chile, India, Indonesia, Japan, South Korea, Mexico, Thailand and the EU) requested the establishment of a Panel, while six others (Argentina, Costa Rica, Hong Kong, China, Israel and Norway) joined as third parties, supporting the complainants.
On 16 September 2002, the Panel Report recommended the repeal of the Byrd Amendment, as it was held to be a WTO-incompatible response to dumping and subsidization. Offset payments constitute a remedy, in addition to the imposition of an anti-dumping or anti-subsidy duty and this is not envisioned under the WTO rules. Following a US appeal in October 2002, the Appellate Body in its report in January 2003 confirmed the Panel’s central finding that the Byrd Amendment is WTO-inconsistent.
The deadline for the US to bring the Byrd Amendment into WTO conformity expired on 27 December 2003. As a consequence, the EU has requested the WTO to authorize retaliatory measures in January 2004. The issue is currently before the WTO and the United States has, as yet, taken no action towards ensuring WTO compliance. However, at the meeting of the WTO Negotiating Group on Rules (26-28 April 2004), the United States said that it was ‘beyond question that countries have the sovereign right to distribute government revenues as they deem appropriate’, but added that the United States intended to implement the Byrd Amendment ruling.
IV. Lessons learnt
The crisis caused by the anti-dumping petition of the Ad Hoc Group has been so far handled competently. The two nodal agencies, one a government body (the MPEDA) and the other a private trade body (the SEAI) have co-ordinated their approaches. One reason for this of course is that the SEAI is represented in the management of the MPEDA. Several visits by the representatives of those two bodies to Washington at critical points also helped to bring an understanding of the nature of the problem and how to face it. This resulted in the selection and appointment of the legal counsel, as early as September 2003. The importance of co-ordinated action by the threatened partners, even those outside India, was appreciated and was worked on by the trade representatives with their counterparts in several Asian countries included in the petition.
Another achievement has been the speedy resolution of the issue of financing. The fact that the Association decided to bear more than 50% of the total costs from its internal resources and the rest from the contribution of members according to the value of their respective exports was critical. Equally critical has been the government’s steadfast support for the shrimp industry.
But what remains unaddressed is the issue which is in fact generic and therefore affects all cases, including the shrimp case. Anti-dumping cases take a long time to be finally decided. During this period, trade is affected because importers are risk-avoiders and will, therefore, be likely to shift to new sources of supply until the uncertainty is resolved. Industry people pointed out that an anti-dumping case was initiated against Indian leather goods in South Africa two years ago. Although the case was ultimately settled in India’s favour, the market was lost to India, because of the uncertainty caused by the transitional decisions.
There is, therefore, a huge human element in such cases where the products originate in small and medium-sized enterprise sectors, and a large number of poor and marginal farmers, artisans or unskilled or semi-skilled labour are engaged in the production of such goods. As of now, there is no institutional mechanism, in the form of a safety net, to take care of this problem. The Indian shrimp industry is one where the problem is acute because of the way in which it is organized. As observed earlier, the industry is fragmented and dominated by small fishermen and farmers. Uncertainty for any reason create risks which they are not equipped to bear. This case has highlighted the need for the government to look at this issue. Since the Indian government has already indicated its decision to fight an adverse judgment, the need is more acute.
The shrimp industry in India had always focused on one or two major markets for growth. Previously it was Japan and during the last few years, it has been the United States. It has now learnt the importance of diversification. A. J. Tharakan, the SEAI president, has said that they are exploring alternative markets to make up for the loss of the lucrative US market. ‘But it will be a long drawn-out process. It is not easy to establish your presence.’
This is why it is important to start early — a lesson the industry appears to have learned from this experience.
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