Schuyler Richard Porche
Doctoral Candidate
Louisiana State University Dept. of Political Science
Testimony before the U.S.-China Economic and Security Review Commission
Hearing on Chinese Seafood: Safety and Trade Issues
April 25, 2008
I would like to begin by thanking the Review Commission for offering me the opportunity to comment on the political and economic aspects of trade in crawfish tail meat. While the body of my comments will not address food safety, I would like to take this opportunity as a consumer of seafood to observe that the Federal Government through agencies such as the Food and Drug Administration have a responsibility to ensure that imported foods meet some basic standards of safety and quality. I have lived and eaten for extended periods of time in different areas of the People’s Republic of China. Based upon my own personal experiences, I believe meats and other foods are generally processed under very different standards of health and safety in the two countries.
Having made these comments, I will now turn to my primary area of concern: the trade in crawfish.
In 2003, the International Trade Commission reviewed its original decision from the mid-1990s to impose an anti-dumping duty on imported frozen crawfish tail meat from China, and raised the China wide anti-dumping duty from approximately 201% to 223% of the value claimed for imported frozen crawfish tail meat from the People’s Republic of China (PRC). However, the ITC’s original findings as well as the review do not point to any actions by the Chinese government or to Chinese seafood processors which could be described as dumping in any common understanding of the term. For example, there is no evidence I have observed in the case of frozen crawfish tails where a Chinese government agency or company was or is actually selling goods at a loss in the short-run as a strategy to capture larger long-run market share.
In March of 2008, I visited a grocery store in Baton Rouge, which has locations nationwide, to compare prices of frozen crawfish tail meat. The price for ¾ of a pound of tail meat from China handled by a seafood processor in Marrero was $5.54, or about $7.39 a pound. The price for a pound of tail meat from Aqua Farms in Eunice, LA was $15.58. Alternatively, the price for a pound of Riceland Crawfish from Eunice, LA was $12.32 a pound.
Crawfish in China can be harvested, cooked, peeled, frozen, shipped several thousand miles, taxed at the U.S. boarder by over 200% and still cost consumers 40-50% less than similar domestic products. The current legal findings have produced the worst of all possible outcomes for domestic consumers, domestic producers, and foreign producers. In effect, the evidence demonstrates that consumers are paying more for frozen crawfish tail meat than they would in the absence of an anti-dumping duty, but the number of seafood processors handling crawfish in the Gulf has declined dramatically since the late 1980s in the face of competition. It is difficult to identify any notable benefits to fishermen or farmers who harvest crawfish; they have been forced to rely upon the live and freshly prepared markets for their product. Farmers in China, who generally live an extremely difficult existence, are currently selling less product than they otherwise would in the absence of the anti-dumping duty. The only group of individuals who can be described as benefiting in any way from the current situation are a small group of seafood processors who under the Byrd Amendment qualify to receive a portion of the receipts collected under the anti-dumping duty. But, most of the assessed duties are never actually collected and redistributed.
For most products, imports of seafood are 68–98% of the domestic market, with shrimp being a particularly competitive market (USDC 1998). Until the 1990s, domestically produced red swamp crawfish (Procambarus clarkii) had not met significant market challenges from imported products. The crawfish industry has changed dramatically since the late 1970s.
For most of the history of crawfish harvesting in Louisiana, the industry was primarily a process of fishermen engaging in the harvest of wild crawfish. According to data collected by the Louisiana State University Agricultural Center, the crawfish industry has shifted from production equally distributed between fishermen and aqua-farmers to an industry dominated by aqua-farming. In the 1970s, aquaculture began to expand rapidly in the Gulf south region of the United States, especially in Louisiana. For example, in 1970, approximately 18,000 acres of land were utilized for crawfish aquaculture. By 1975, the acreage being farmed had increased by 150% to approximately 45,000 acres. After reaching a peak of 131,000 acres used for crawfish aquaculture in 1988, acreage showed a declining trend in the 1990s, from 120,654 acres in 1990 to 106,653 acres in 2002.
At the level of farmers and fishermen, the producers are numerous and their economic situation has fluctuated substantially over the last 20 years. In 2002, there were 1,132 crawfish farmers on an average of 94 acres per farmer, and average farmers earned $462 per acre. Since reaching a peak of 1,835 farmers in 1988, the number of farmers has been on the decline. The 20-year average for acres per farmer is approximately 75 acres. In nominal terms, the value of crawfish produced per acre has been ‘‘U’’ shaped. A high price of $531 per acre in 1982 declined until 1989 and demonstrated a generally increasing trend during the 1990s. However, the consumer price index increased by 118% between 1980 and 2002, which has eroded the real value of crawfish per acre.
Exposure to International Trade: A Tale of Chinese Crawfish
While aquaculture has been prevalent in South and East Asia for hundreds of years, by the early 1980s, crawfish were still not a part of the staple products consumed or produced in the region. In fact, according to UN data from 1972, China had no recorded crustacean aquaculture production (Ling 1977:3). The story of frozen crawfish tail meat first arriving in the Unites States from China is an illustration of how globalization and international trade are changing the way in which people interact over long distances. In 1992, China produced an estimated 40,000 tons of crawfish per year, Spain produced 5,000 tons per year, and Kenya produced 100 tons per year (Huner 1992:6). At the same time, production in Louisiana hovered around 50,000 tons.
The Red Swamp crawfish native to the Southern United States, Procambarus clarkii, is the same crawfish produced in China. According to Huner (1992:7–8), the red swamp crawfish was imported to Japan in the 1930s to serve as food for imported bullfrogs. Wu (1995:145) reports that Japanese soldiers brought a few crawfish to Nanjing during World War II. Wu suggests that the original reason for bringing them to China is no longer known, but it was not for purposes of human consumption. The peasants began to take note of the crawfish over time as they became more numerous. The crawfish became a nuisance as they moved into their rice fields, dug holes in the levees, and destroyed their crops. The peasants named the crawfish Wanrenhen, which means ‘‘a creature hated by everyone.’’
Following the rise of Deng Xiaoping, China began a process of liberalization, which in part involved relaxing prices on food. In the mid-1980s, and especially after 1989, the inhabitants of Nanjing began to take notice of the crawfish as a potential food source. Food prices had increased dramatically as a result of the liberalization, so the ‘‘creatures hated by everyone’’ could not only be eaten, but exchanged for money as well (Wu 1995:146). In 1989, Wu (1995:146) reported that prices in Nanjing for live crawfish would translate to less than $.50 for 1 kilogram. During the late 1980s, a local market for crawfish was beginning to develop; however, the processing and export industry was in its infancy. Yet, by 1999, it is estimated that 80,000–100,000 metric tons of crawfish were being produced for consumption. The discovery of the U.S. market appears to have occurred through correspondence and cultural exchange between aquaculture researchers in the United States and China.
Prior to the introduction of frozen crawfish tails from the PRC, local seafood processors in the United States controlled virtually the entire market for frozen crawfish tail meat. The market existed primarily in the Gulf South of the United States. By the 1994, Chinese producers already controlled approximately 58% of the market. This figure continued to rise despite the enforcement of the ITC finding. By 2001, Chinese producers controlled over 92% of the frozen crawfish tail market. Additionally, the national market in the U.S. for crawfish has expanded noticeably since the introduction of Chinese competition from 5.2 million pounds on the market in 1994 to 13.5 million pounds in 2001. Given the availability of a less expensive product, consumers have chosen to eat more crawfish. In effect, the anti-dumping duty is a tax on the consumption of crawfish etouffee, crawfish bisque, and other dishes enjoyed by Louisiana families which can prepared using frozen crawfish tail meat.
The People’s Republic of China is treated differently from many other countries because the U.S. government has previously determined as recently as 1995 that China is a Non-Market Economy (NME) (Federal Register 1997:41348). While some of the Chinese companies submitted to demands for information by the ITA, all companies that did not cooperate with the ITA investigation have a China-wide rate applied to their imports. Many of the companies that did cooperate still received relatively hefty antidumping duties because the PRC is assumed to control the non-cooperative companies.
The 1997 ITA findings determine the ‘‘Normal Value’’ of crawfish produced based upon the material cost structure in India and Spain. Most importantly, the government determined that labor differences could not be used to adjust for differences in cost. ‘‘We disagree that the low wage rates in the PRC are relevant. It is precisely because prices and costs in the PRC are not market determined that we are using the NME methodology, which relies on surrogate values . . . The impact of these factors would be difficult if not impossible to determine with any certainty . . . there are a number of factors which would be extremely difficult to know, including the relative productivity of the labor used in harvesting crawfish and capital investment’’ (Federal Register 1997:41355). This finding has not been altered since China’s admission to the WTO, and clearly must have serious implications for the ITA’s conclusions. The production and processing of crawfish is primarily a manual activity with little automation or mechanization. In 1997, when the ruling was first reached, the International Labor Organization reported that the average monthly earnings of farmers in America were 28 times larger than the average monthly earnings of Chinese workers in agriculture. This difference in labor costs may in large part account for the dramatic difference in prices. Under the findings, an antidumping duty at a China-wide rate of 201.63% was levied against imports. By April 21, 2003, the China-wide rate had increased to 223.01% (Federal Register 2003:19508).
The ITA offered no other substantive reasons in publically available evidence for the difference in price. Given the labor intensive nature of individuals peeling crawfish, it is hard to imagine how differences in labor rates could not be a critical factor in determining the price of processing crawfish in China. Furthermore, in reality China today has active national and regional labor markets in which wage rates are determined through negotiations and competition.
The Politics of Protection
Agricultural products are steadily being subjected to the liberalizing effects of various multilateral trade regimes. As a result, seafood and agricultural products of various types are being increasingly exposed to competition from the global market. Globalization of the seafood industry is not limited to products such as tuna, sardines, caviar, and salmon, which have had global markets for an extended period of time. Today, frozen seafood produced through aquaculture, such as crawfish and catfish, are now regularly transported internationally to compete in foreign markets.
Crawfish farmers and fishermen are often characterized as highly independent and unable for a variety of reasons to cooperate with other members of their industry at the political level. This may be due to the large number of small producers in the industry. The average area of production was approximately 94 acres in 2002, resulting in an average gross income of $43,428. With over 1,000 farmers, these small producers are operating in a highly competitive market in the classic economic sense. While their smallness in numbers and spatial proximity is suggestive of cooperation, the competitive market structure may diminish the positive impact of face-to-face contact and the formation of a social network to disseminate political information.
In the mid-1990s, the consumption of crawfish, a common ingredient in Louisiana regional cuisine, expanded rapidly in markets throughout the United States. Consumption of frozen crawfish tail meat increased from 5.3 million pounds in 1994 to 13.6 million pounds in 2001. Traditionally, most processed crawfish was produced and consumed in the southeastern region of the United States. The rapidly increasing demand for frozen crawfish resulted in a new supplier entering the market--China. Chinese crawfish production developed rapidly in the 1990s and was substantially less expensive than the U.S. domestic product. Subsequently, political representatives of the domestic crawfish industry, primarily the Commissioner of the Louisiana Department of Agriculture and Forestry, sought protection for seafood processors, and the U.S. International Trade Commission determined that Chinese importers were dumping frozen crawfish tails on the U.S. market. Currently, a countervailing duty of approximately 223% is enforced against most crawfish imported from China. Curiously, the supply of protection occurred in the absence of organized demand, which is rather unexpected, given the political economy literature’s focus on the demand for protection.
In the United States, the political consensus on the supply of trade policy and protectionism has changed over time. Before the great depression, tariff revenues and protectionism played important roles in the politics of both major political parties. Of course, Democrats and Republicans often took highly partisan positions on matters of trade, but little support for liberal trade policies existed (Bailey, Goldstein, and Weingast 1997:314–317). While there is no unanimity about the impact of the Great Depression, many scholars maintain that it radically changed the intellectual consensus on trade policy (Goldstein 1986:162). Even though political leaders sometimes publicly flirt with protectionist policies, the overwhelming trend since the end of World War II in the United States has been toward policies that encourage free and fair trade. ‘‘Free trade conditions are the baseline. Deviations are due to political, albeit economically motivated, phenomena’’ (Goldstein 1986:164).
In political science research, the consensus position is that maintenance of the free trade policies can be attributed to a transfer of trade policy responsibility from a Congressional to an Executive and bureaucratic function. As a result, Goldstein (1986) argues that America’s approach to foreign trade policy is not laissez faire liberalism. Instead, American foreign trade policy is based around the concept that foreign producers of a given product must be subject to market forces of competition in a manner similar to American producers.
In order to justify domestic protection for a U.S. industry, the U.S. government requires demonstration that a foreign competitor is not only producing goods through a nonmarket means of production but the foreign competition has produced ‘‘material injury’’ to the domestic industry (ITC 2003:3). Protectionist remedies are thus available to domestic industry; yet, bureaucratic processes have tended to limit that aid. As Goldstein (1986:166) concludes, ‘‘Policymakers in the U.S. cannot ignore domestic groups. However, that does not mean giving these groups what they want. The government needs to appear responsive, not be responsive. Thus, if an industry articulates a need for aid the response can be only symbolic support.’’
With crawfish, consumers whose interests are best served by free trade ‘‘win,’’ producers are unable to organize to demand protection despite suffering economic harm, the government appears to supply protection to producers harmed by international trade, but it is actually the processors who accrue limited benefits from protection through Byrd Amendment payments. Thus, crawfish producers are symbolically assisted in adjusting to international trade competition with only modest impact on consumers or overall U.S. trade policy liberalization.
Political officials involved in the process were ecstatic about the initial ruling. Louisiana State Commissioner of Agriculture Bob Odom was careful to couch his victory in language that supports Goldstein’s (1986) contentions about the general ideology underlying U.S. trade policy. Odom claimed that his goal was not to drive the Chinese out of the market, but to create a ‘‘level playing ground’’ (Grissom 1997). It was also clear to everyone involved in this process that Odom was the driving force behind the supply of protection, as ‘‘the Crawfish Processors Alliance could not maintain sufficient funds and organization to perform an enforcement function’’ after the initial ITC finding (Roberts 2000). In 2002, after the antidumping duties proved ineffectual at preserving domestic production and processing, Odom followed the European Union’s lead in disrupting Chinese imports over concerns that chloramphenicol, a restricted veterinary antibiotic, was present in Chinese shrimp and crawfish. In April of 2002, he ordered food safety inspectors to start pulling samples of shrimp and crawfish from store shelves for testing. After initial tests found traces of the antibiotic, he issued emergency rules requiring that all shrimp and crawfish products from China be tested for the substance at state approved labs and carry supporting documentation that they had been tested before sale. Odom also had the state seize around 2 million pounds of Chinese shrimp and crawfish containing traces of the substance. U.S. importers and distributors suspected political motives, given that the emergency rules were issued in May at the height of the domestic crawfish production season, but Odom prevailed and brought the Chinese import of crawfish to a virtual standstill (Hedlund 2002).
Other political officials soon jumped on the food safety bandwagon, as Louisiana U.S. Senator John Breaux joined with colleagues from other states facing tough import competition in the seafood industry to sponsor a law that would give the FDA the authority to ban seafood imports from countries identified as ‘‘likely sources’’ of banned veterinary drugs like chloramphenicol (Hedlund 2002). Commissioner Odom and nearly all members of Louisiana’s Congressional and Senate delegations continued to lobby the ITC to maintain the antidumping finding, which was renewed in 2003. Agricultural protection is often couched in terms of protecting culture, and it would appear that it was part of the motivation of elected officials in seeking protection.
After the initial ITC finding, nearly everyone expected that ‘‘imports from China should be greatly reduced in the second half of 1997 and in 1998’’ (USDA 1997). However, the enforcement of the antidumping duties was hampered by several factors. First, some Chinese crawfish tail meat was shipped and repackaged in Singapore, and then shipped to the United States, as Singapore was not subject the ITC ruling (Roberts 2000). Second, as the amount of the duty was firm-specific, new shippers were often able to avoid duties altogether due to a flawed process of determining the duty (Johnson 1999). Finally, many of the firms simply did not pay the duties, as the bonds they had to post against the estimated value of their shipments were exceptionally low. By 2002, only $7.5 million dollars in antidumping duties, out of $64.5 million assessed, were collected by U.S. customs and distributed under the Byrd Amendment to U.S. seafood processors (U.S. ITC 2003 Review, III-9). However, the official number of seafood processors continued to decline from approximately 80 processors in the early 1990s to 47 processors in 1996 to 31 survey respondents in 1997 (ITC 1997). Finally, the 2003 review by the ITC noted that only 27 processors based primarily in Louisiana received payments from the countervailing duty collected in 2002.
Only $9.7 million was distributed to processors in 2003, compared with the $94.7 million in duties assessed. Commissioner Odom and Senator Mary Landrieu of Louisiana have been quite vocal in their criticism of U.S. Customs’ ability to collect on the antidumping duties on behalf of processors (Landrieu 2005). The amount of uncollected duties on crawfish imports increased to $170 million in 2004, with only around $8.2 million collected and distributed (McKnight 2005).
Conclusion
For the crawfish processors of Louisiana, it is fortunate that international competition came from a ‘‘Non-Market Economy’’ because other regions with low-labor costs may not have provided the political rational required by U.S. law. On the basis of the evidence provided, three issues become apparent. First, crawfish farmers and fisherman have failed to obtain any form of protection, which has resulted in stagnant or declining total harvests in the 1990s. In part, this is due to increased competition in the area of frozen crawfish tail meat. In contrast, seafood processors have supposedly gained protection from the government; however, since the introduction of frozen Chinese crawfish tail meat, the number of crawfish processors has declined rapidly. Further, processors receive only a small portion of the antidumping duties actually assessed, with the federal government either unwilling or unable to pursue increased collection. Based upon these facts, the trade protection process is designed to provide only the appearance of protection for an industry.
The state of Louisiana has invested approximately $1.65 million and the U.S. federal government has produced thousands of pages of documentation, but as of 2002, Chinese imports comprised 84.2% of the entire market for frozen crawfish tail meat. This suggests that the government remedy is largely ineffective in supporting domestic processors but offers the appearance of action by co-opting the remaining smaller groups of processors with Byrd Amendment payments. Consumers pay a form of taxation in the form of higher prices for frozen crawfish tails. But, the protection is not sufficient to keep the vast majority of crawfish processors functioning. In the end, the winners of this situation are elected political representatives who are rewarded for visible political action for their constituency but the substantive results, which are harder to perceive, largely allow international competition detrimental to domestic producers to occur.
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