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U.S. Antidumping Duties On Shrimp Imported From Thailand

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U.S. Antidumping Duties on Shrimp Imported from Thailand

Summary:
The case happened because US shrimpers call for end GSP. The largest seafood associations in the US tried to lobby campaign in Washington to cut generalized system of preference (GSP) privileges to Thailand. They want the US congress to look into Thailand’s business practices. They said “Thai shrimp imports have been a serious problem for us and shrimp farmers across the US for years, and we need to bring attention to the issue and the country’s business practices.” However, Thailand is already undertaking action to the WTO against the US for this action.
Mr. Somsak Paneet, president of the Thai Shrimp Association, said that the cancellation of GSP privilege will affect not only on shrimp export but also other industries such as garments and jewelry. Unfortunately, it becomes more complicate since the United States Trade Representative (USTR) put Thailand to its Priority Watch Lists.
Moreover, Thai shrimp exporters also ask the Commerce Ministry to file complaints against the U.S. at the World Trade Organization. This is because Thai shrimp exporters have to face with the imposition of “zeroing” and the over “continuous-bond” payments, imposed by the U.S. government as a reason of antidumping policy. Although the complaints about the U.S. moves have been made before, the progress is very slow, due to the complex of the problems.
For zeroing practice, Mr. Poj Aramwattanont, Thai Frozen Foods Association president, claims that zeroing and continuous-bond payment are unfair. Also, he shows confidence that Thailand will win the case because this type of cases has been judged as unfair by the WTO before.
One of the cases that has been judged as unfair by the WTO is Ecuador case. The panel found that the duties that the U.S. imposed on imported shrimps by Ecuador, as a reason of dumping the price in the U.S. market, is violated the international trade rule. This is because Washington’s use of a practice, known as “zeroing” to calculate whether the shrimps were sold below the market price is unfair. As a result of the previous panel decision, zeroing practice leads to overstated margins of dumping, and thus higher duties.
Another trade barrier is that Thai shrimp exporters face a 100 percent bank-guarantee payment in the U.S., known as a continuous bond. Exporters have to pay more that 3.46 billion baht in bonds and 5.79% to 6.82% of shipment values in antidumping duties.

Result:
The U.S. is found to be violated, and they agreed to change its “zeroing” calculation in August. Also, they would adjust its calculation method for continuous bonds. These actions will reduce the cost, they said.
Sources of the cases:
WTO faults some U.S. duties on shrimp. Xinhua Finance News: Asia (Eng)
Wednesday, January 31, 2007.
U.S. shrimpers call for end to GSP. Bangkok Post Website (Eng)
Thursday, June 07, 2007.
Shrimp export firms to press US complaints. The Nation Website (Eng)
Monday, June 18, 2007.
Analysis of the result:
Causes of this case are those about perfect competition, dominant position, and, predatory pricing abuse.
Perfect competition is that firms must be able to compete freely in the market. When the price of imported shrimps from Thailand is very low, it causes competitors in the U.S. market to die out because they cannot compete with the very low cost products. Therefore, the U.S. imposes tariff on shrimps from Thailand to offset foreign dumping.
Dominant position is referred to those who have economic strength and use it to prevent effective competition. U.S. shrimpers claim that Thai shrimpers have dominant position because imported shrimps from Thailand contribute a high volume to the total U.S. imported shrimps.
Moreover, predatory pricing from the lesson I have learned is considered to be an abuse if the dominant company applies it to protect or strengthen its dominant position.
As a result, U.S. shrimpers brought this case to WTO to consider Thailand’s business practice, and the U.S. imposed a tariff as a response to international policy distortion.
According to WTO, zeroing is a calculation method that ignores negative margin of dumping. To know more, see appendix 1 on how it’s calculated. As a result, it causes an unfair increase of dumping liability of exporter (WTO, n.d.). Therefore, Thailand brought this case to WTO, and this case is very similar to the Ecuador’s case which has been judged before as unfair.

My perspective
From the previous result, I quite agree with the decision made by the panel that imposing tariff calculated by using zeroing method, as a reason of antidumping, is unfair because of the following reasons.
According to Article VI of GATT, during the Uruguay Round, antidumping means charging extra import duty on a product in order to bring its price closer to the fair value or to help domestic industries from injury. Also, you need to calculate the extent of dumping, investigate the impact to importing countries, and look into all economic factors that could affect before you can impose tariff (definition, n.d.).
According to Free Trade Organization, Dan Ikenson, policy analyst, claims “Few trade policies engender more bitterness and international ill will than the U.S. antidumping law. For many years, that law has been the weapon of choice among domestic producers seeking to quell import competition.”(zeroing, April 27, 2004)
According to the Agreement on Technical Barriers to Trade, at the Uruguay Round, states “This agreement will extend and clarify the Agreement on Technical Barriers to Trade reached in the Tokyo Round. It seeks to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade.”(Legal, n.d.) Therefore, I think that zeroing is a calculation method that is unnecessary obstacles to trade.
Moreover, from my opinion, I think that antidumping is difficult to determine. From my knowledge, dumping is when a firm sells a product at a lower price in the export market that in the domestic market. Moreover, whether the act of selling below the market price (less than fair value) is considered to be illegal or not depends on the intention of the act. Therefore, we have to consider these three types of dumping.
The first type of dumping is persistent dumping. Persistent dumping is when a firm charges different prices in different markets under profit maximization condition. This type of dumping comes with good intention. Thus, it’s not valid to consider it as illegal.
The second type of dumping is predatory dumping. Predatory dumping is when a firm sells a product below the market price until domestic producers are driven out of the market. Then, it charges a monopoly price. The type of dumping comes with bad intention. Thus, it’s valid to consider it as illegal.
The third type of dumping is sporadic dumping. Sporadic dumping is when a foreign producer or government has a surplus of goods temporarily. Therefore, it has to export the excess for whatever price. This type is not valid to consider as illegal.
However, the problem is determination. It’s very difficult to determine because it’s about intention (Dr. Yingyot, n.d.).
Furthermore, as WTO claims, in order to judge antidumping duties, the importing countries have to consider all economic factors that might involve with the cause of selling less than fair value. These are my points of view on why the shrimp’s price is very low, comparing to U.S. market.
First, Thai labor cost is lower which causes the cost of production to be lower than in the U.S.
Second, at the time when shrimp exporting industries were still profitable, others saw this opportunity and started getting into this business. Therefore, supply of shrimps increases a lot while demand stays. As a result, the competition becomes more intense, especially when there is a huge amount of supply that excesses demand. Consequently, prices drop a lot. Shrimpers has no choice to do because demand in domestic market isn’t that high. Therefore, they have to sell it at whatever price in exporting market. As you can see nowadays, there is a program launched to encourage Thai people to consume shrimps. I think that this program is designed to reduce an excess of supply to reach the equilibrium.
Another important issue is about GSP. Generalized System of Preferences (GSP) is when certain developed countries permit duty-free entry of a selected list of products if they are imported from particular developing countries. The call for end GSP is not only for anti-dumping. If the U.S. cut GSP privileges to Thailand, it could have an impact on various Thai export industries such as garments, gems, jewelry, seafood, and food processing

Conclusion:
There are many arguments for interventionist trade policies. One of them is to offset foreign dumping. In common law system, intention plays a very important role. From the case mentioned above, you can see that there are many types of dumping, and predatory dumping is considered to be illegal when it prevents competition. However, the most important thing is determination of intention. Therefore, it’s very difficult to determine. Sometimes, we based the case on what have been judged before. Finally, from my opinion, it’s not fair if the U.S. cut the GSP privileges because of shrimp dumping. I think that it’s better to look inside what’s going on in our country that causes the price of shrimps very low, for example a surplus of supply.

References
WTO. (n.d.). [website]. “Zeroing practice” Retrieved 25/02/08 from
www.wtothailand.or.th
Definition. (n.d.) [website]. Definition and degrees of dumping. Retrieved 29/02/08
from http://en.wikipedia.org/wiki/Dumping_%28pricing_policy%29
Zeroing. (n.d.). [website]. Zeroing In: Antidumping's Flawed Methodology under
Fire. Retrieved 29/02/08 from http://www.freetrade.org/node/105
Legal. (n.d.). [website]. Legal Texts: the WTO agreements. Retrieved 29/02/08
from http://www.wto.org/english/docs_e/legal_e/ursum_e.htm#dAgreement
Dr. Yingyot. “international trade workbook 2” page 46

Appendix1:
In Table 1 comparisons of the average prices of five products in both markets are presented. Each product is sold at identical net prices in both markets with the exception of Product 1 and Product 5. Product 1 is sold for $0.50 less in the home market than in the U.S. market, and Product 5 is sold for $0.50 more. The unit margin is equal to the amount of dumping calculated for each unique comparison. The arithmetic sum of the individual dumping margins (total margin) is zero because the price differences for products 1 and 5 cancel each other out. But surprise: This is not how dumping is calculated by DOC.
Rather, the negative dumping margin on Product 1 is set equal to zero and is thus denied any impact on the overall margin. Thus, by engaging in zeroing in this example, the DOC would find a dumping margin of 10 percent (the sum of the total PUDD[4] divided by the sum of the total value) despite the lack of any difference in overall price levels between the two markets.

Consider the results of 18 actual U.S. dumping determinations in Table 2. Using actual case data and the DOC's dumping calculation computer programs, it was possible to calculate the actual effects of zeroing in these particular cases. In 17 of the 18 determinations, the dumping margin was inflated by zeroing. In 5 of the cases, the overall dumping margin would have been negative. On average, the dumping margins in the 17 cases would have been 86.41 percent lower if zeroing had not been employed.

Certainly, the impact of zeroing varies from case to case. If every comparison generates a positive dumping margin, then the prohibition of zeroing will have no impact. But if there are many comparisons generating negative margins, or if there are only a few generating large negative margins, the prohibition of zeroing can have a very substantial impact on the amount of antidumping duties ultimately applied.

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