The New Catfish War: United States V. Vietnam

Anbinh Phan, Woodrow Wilson School of Public Policy and International Affairs

The New “Catfish” War: United States v. Vietnam

Implications of US Trade Policy in Vietnam

Executive Summary

Trade wars between the United States and Vietnam accelerate as catfish farmers in the Southern region of the US lose sizeable business to catfish farmers in Vietnam. In response, food-labeling practices now differentiate “Made in Vietnam” catfish. US farmers run ads and claim that the fish grown in the Mekong Delta in Vietnam are raised under unsanitary conditions and are possibly contaminated with a chemical agent used during the Vietnam War: Agent Orange. In addition, the US farmers contend that the Vietnamese state subsidizes its farmers, thereby lowering the prices of catfish enabling “dumping” in the US market and decreasing profits for thousands of Mississippi farmers.

In accordance with the anti-dumping suit filed on June 28, 2001, by the United States Association of Catfish Farmers of America (CFA), a group representing the Mississippi Delta Farmers, to the International Trade Committee and the US Department of Commerce against the frozen catfish from Vietnam; and in response to the 2001 US Senate law forcing Vietnamese exporters to label their catfish- ‘Tra’ or ‘Basa’- a similar subspecies, the Vietnamese government is crying fowl against American trade policy.

Where The Trade War Begins: Entry Into The US Catfish Market

After two decades, the US embargo to Vietnam was lifted in 1995. On December 10, 2001, the United States and Vietnam signed a bilateral trade agreement (BTA) that formalized a preferential trading status. Since the BTA was enacted, trade from both sides increased and punitive tariffs have been slashed. Today, Vietnam exports nearly $1.6 billion worth of shoes, textiles, shrimp, catfish and other commodities to the United States and the United States exports $500 million in cotton, fertilizer and air pumps (Chapman).

In the United States catfish has gained considerable popularity. Most of the catfish is raised in Mississippi, Arkansas and Louisiana in ponds, resulting in leaner and healthier catfish. In the mid 1980s, mainly the poor consumed the good. However with new pond farming techniques, today Americans eat 300 million pounds of catfish (Chapman). As a result of the BTA, Vietnam entered the frozen catfish filet market and captured a sizeable share.

In June 28, 2002 the U.S. Association of Catfish Farmers of America (CFA) filed a lawsuit with the International Trade Committee and US Department of Commerce against the pricing of frozen catfish from Vietnam. U.S. producers complained that they were losing market share to Vietnamese catfish and the CFA accused 52 Vietnamese businesses of ruining the U.S. catfish market. As it could not compete with low-priced catfish imports from Vietnam, the US producers were forced to accept losses.

Food Labeling Claims

At first, the US responded by claiming that the catfish from Vietnam was poor quality and not of the same species. In response, in 2001 the US Senate passed a law, supported by Senator Trent Lott (R- Mississippi), and the Food and Drug Administration was asked to label the Vietnamese catfish under the different names of ‘Tra’ and ‘Basa.’ In recent years catfish was also specifically labeled “Made in Vietnam” so that American consumers could distinguish it from domestically grown catfish.

Furthermore, the United States advertisers and Members of Congress claimed that the catfish raised in Vietnam is an entirely different in quality because of the murky waters of the Mekong Delta and its freedom to roam and eat as it pleases. This is in comparison to the catfish that are raised in sanitary ponds in the US. The difference in raising techniques is the basis for the food labeling legislation. Now even after changes in food labeling, and since Vietnamese imports continue to sell well in the domestic market, the United States contends that catfish breeders are unfairly “dumping” their products in the US.

Anti-dumping Claims

Under the anti-dumping argument, the US claims that Vietnamese catfish markets are heavily subsidized by the government and that the true cost of producing catfish is therefore not reflected in the prices sold to the US. While it is true that the catfish industry receives loans form the government, this per se does not make production much cheaper, but due to bureaucracy and market distortions, perhaps even more expensive. The Vietnamese must prove that the catfish industry is operating under free market mechanism and not state subsidized.

Vietnamese catfish farmers say their lower production costs, including low labor costs, allow them to offer fish at a competitive rate, but the CFA charges that Vietnamese producers have been dumping "low quality" catfish in clear violation of President George W. Bush's Farm Security Act” (Inter Press Service). The catfish farmers are upset because the “inferior” quality catfish are flooding the US market, driving prices down. On January 23rd, 2003 the Department of Commerce agreed to raise tariff on Vietnamese catfish (which will be discussed in the Economic Analysis section).

Vietnamese Response

Overall, the Vietnamese claim that their fish are fresh and breed in sanitary conditions. Their prices, they say, are twenty percent lower because of lower labor costs and feed costs and the fact that the breeding grounds are better in the region (Byrd). Vietnam has agreed to allow a change in the food label name and the additional labeling of “Made in Vietnam.” The US continues to launch campaigns to keep catfish consumption domestic.

The Implications For Food Labeling:

Labeling laws in the United States are designed to provide consumers with adequate information in markets where there is imperfect or asymmetrical information, as such “Government intervention in labeling in the United States has served three main purposes: to ensure fair competition among producers, to increase consumers’ access to information, and to reduce risks to individual consumer safety and health” (Hadden, 1986 from Golan et. al.). Food labeling is a useful way for consumers to distinguish between product qualities.

There are several kinds of food labeling, but ‘country of origin’ labeling is the most applicable and under contention in the catfish wars. The Catfish Farmers of America ran an ad that read: “Never trust a catfish with a foreign accent. They’ve grown up flapping around in Third World rivers and dining on whatever they can get their fins on” and Vietnamese producers were accused of misleading consumers to believe their catfish were American by labeling their catfish “Delta Fresh” or “Cajun Delight Catfish” (Chapman). Since food-labeling practices can be a form of protectionism or misinformation, it is important that food labels are accurate and verifiable.

A Precedence For Food-labeling in Fish: Peru v. EC, Dispute Settlement 231, 2002

Although food labeling is not considered under the WTO sanitary and phytosanitary standards, it is recognized under the Technical Barriers to Trade (TBT). The Vietnam vs. US case is a food labeling case very similar to the Peru vs. EC case on the labeling of sardines. In the European Communities,Appellant v. Peru,Appellee case with Canada, Chile, Ecuador,United States,Venezuela as third participants in a panel dispute established in July 2001 and ruled on September 2002 in favor of Peru. This dispute contested the name under certain species of fish could be labeled and marketed in the European Communities. The EC claimed that certain species of sardines from Peru were not identical to those from the EC and established a marketing standard for preserved sardines. Before the Panel, Peru argued that the ECRegulation is inconsistent with Articles2.4, 2.2 and2.1[1] of the Agreement on Technical Barriers to Trade (the "TBTAgreement") and ArticleIII: 4 of the General Agreement on Tariffs and Trade 1994 (the "GATT1994"). The Panel found that the ECRegulation is inconsistent with Article2.4 of the TBTAgreement.The Panel recommended that the Dispute Settlement Body required that the EC conform to its obligations under the TBTAgreement.

When is Labeling Appropriate?

Labeling is appropriate when consumer preferences differ. In the case of the catfish wars there is evidence that consumers may prefer homegrown catfish. Although this preference may be induced by the heavy campaigns of the CFA, it is still appropriate to label for geographical trademarks and allow consumer choice based on adequate and full information. However, it is misleading to claim that catfish in Vietnam are “unsanitary” when the FDA has no verifiable evidence for these claims and as such additional information on product use does not necessarily enhance safety. The costs of this food labeling will increase cost of catfish consumption for consumers and benefit domestic producers. Since the private sector has a vested interest in this market, it is difficult for the government (DOC) to fairly establish a standard (Golan, 24).

To appease the US, Vietnam has already agreed to a quota system. For labeling practices is not always appropriate and in some cases “bans, quotas, production regulations or standards and Pigouvian taxes may all be more successful than mandatory labels in adjusting consumption and production to better match social optimum levels” (Golan, 15).

Economics Analysis: Consumer Lose and Domestic Producers Win

United States

Before 2001, the US was the largest importer of Vietnamese catfish, importing 13,500 tons worth an estimated $ 38.3 million in 2001 and 18,300 tons worth $55.1 million between January and November 2002 (Financial Times). The US currently buys 30 percent of Vietnam’s processed catfish (Montlake) and Vietnamese exporters captured 20% of $590 million-$600 million US's frozen catfish fillet market. Vietnam sells over $2 billion of catfish worldwide, an industry that employs between 300,000 and 400,000 people (Alden). In 2001, the US imported 8.2 million pounds of catfish filet. Due to increasing demand, this number was expected to double in 2002.

US farmers believe that their pond methods of farming are the reason for this increase in demand. They are frustrated because the “inferior” Vietnamese catfish is entering US markets under the guise of being pond grown. Due to this increase in supply of catfish from Vietnam, the profits for catfish farmers are being driven down from 80 cents per pound to 55 cents per pound. Farmers in the Mississippi are breaking even where they once made profits:

Previously, the US tried to decrease the demand on Vietnamese catfish by labeling it differently, and secondly by running ad campaigns. Most recently, the Catfish Farmers of America filed an anti-dumping suit and on January 27, 2003 the DOC made an initial finding that Vietnamese farmers had “dumped “ catfish at below-market prices. The DOC recommended import duties ranging from 38% to 64% on frozen fish fillets. However, on February 28, 2003 it decided to cut the duties, explaining that its previous calculations, which were based on figures from India-which has higher production costs then even does the US, were incorrect. Even with the tariffs established in February, Vietnamese exporters cannot afford to ship catfish.

Vietnam
Since, Vietnam is one of Asia’s poorest countries, losing its market share and or the fall of prices of catfish in the United States will have extreme adverse effects on farmers in the Mekong Delta and in the overall economy.

As of April 3rd, 2003, the Vietnamese in an effort to end the nine-month dispute, the VietnamAssociation of Seafood Exporters and Producers (VASEP) agreed that it would place a quota on its basa and tra fish. The Vietnamese producers and exporters' representative propose slashing shipment volumes in 2003 to 90%, 95% in 2004 and will be lifted in 2005, with penalties for exceeding quota before then (Associated Press).

Andrew Foreman, president of Infinity Seafoods Inc., believes that the DOC tariffs will exacerbate the problems, “Its going to drive a wedge further into the consumers down South that already have a hard time swallowing the price of domestic catfish,” Forman said. “It’s only going to force people to buy Vietnamese even more.” (Byrd) The increase in the costs of food labeling will be born by the consumers.

Strategies and Politics: The Bilateral Trade Agreement and WTO Ascension

United States

The United States Catfish Farmers of America (CFA) are a strong lobby. Among the greatest supporters of the CFA are Senator Trent Lott who helped to pass the 2001 labeling law of catfish as ‘Tra’ or ‘Basa’ and Representative Marion Berry (D. Arkansas) who boldly claimed that the catfish from Vietnam were contaminated with Agent Orange.

The economic rejuvenation is vital to constituents in this region. Since catfish farming in ponds is a profitable business, politicians from the Southern region, where catfish is mostly grown, want to protect this industry. Imports from Vietnam lower the price of imports. Overall, to appease their constituency and especially the Catfish Farmers of America Association both Republicans and Democrats want Vietnamese Catfish imports to enter with high tariffs.

There are those who want to uphold the newly established Bilateral Trade Agreement between the countries and have taken a stance against the claims that Vietnamese catfish is unsanitary. Congressmen Phil Gramm (R- Texas) and Senator John McCain (R-Arizona) both agree that catfish from Vietnam is safe for consumption and consider the fish similar since the Food and Drug Administration reported, “fisheries experts say the look and taste (of the catfish) are similar.” It is advisable to maintain these relationships.

Vietnam

The Vietnamese feel that the United States has violated the spirit of the bilateral trade agreement (equal and fair trade). Through opening its markets to trade, those pressing for further reform gained political strength. According to research by Professor Christina Davis of Princeton University, “Movement toward free trade brought by the bilateral trade agreements and WTO accession are causing internal changes - both reducing poverty and changing economic regulations to create a zone with more freedom and transparency for the private sector. The efforts to comply with the market opening commitments of the U.S.-Vietnam bilateral trade agreement (including provisions for Intellectual Property Rights, service, and investment rules as well as market access) represented a revolution in the way Vietnam ran the economy. These gains in trade were strengthening the hands of the pro-reform segments in government, and such setbacks as the catfish dispute gave further fuel to those opposing reforms.” In addition, many farmers are taking out loans and going into debt on the hopes of making a profit, and the loss of the US market due to protectionism measures may leave these venture capitalists in ruin.

In another approach the Vietnamese can benefit from this trade war, because if it can prove that it is using market mechanism in its economy, it can gain credibility for accession into the WTO. The bilateral trade agreement is believed to be the first big step into Vietnamese accession to the WTO (perhaps by 2005). If Vietnam can resolve this dispute it lends it credibility for adherence to the bilateral trade agreement.

Prices of Vietnamese catfish are falling. Local processors are buying less catfish and the crop is not bringing in as much profit as it did formerly. The Vietnamese feel that this is due not to over production, but to US protectionism. Losing this market share will hurt thousands of the poorest farmers along the Mekong Delta and may strengthen the position of Communist hard liners opposed to open markets. This effect may turn out to be the most devastating for a country on the verge of economic and political reform.

Sources:

Armstrong, David, “US Accuses Vietnam of Dumping Catfish on the American Market” February 8, 2003, The San Francisco Chronicle

Associated Press, “Vietnam Proposes Measures to Settle Catfish Dispute With US,” April 4, 2003, Compiled by the Associated Press State and Local Wire

Alden, Edward, “US and Vietnam in Catfish Spat,” January 28, 2003, The Financial Times (London)

Byrd, Sheila, “Catfish farmers Pleased with Commerce Department Ruling,” January 28, 2003, The Associated Press State & Local Wire

Chapman, Dan, “Tangle; US, Vietnam Fight trade war over down-home delicacy,” December 11, 2002, The Atlanta Journal-Constitution, Atlanta & the World

Caswell, Julie A. and Neal H. Hooker and, “A Framework for Evaluating Non-Tariff Barriers to Trade Related to Sanitary and Phytosanitary Regulation” 1999, Journal of Agricultural Economics, 50(2): 234-246

Caswell, Julie A. (ed.), “Economics of Food Safety.” 1991. Elsevier, New York.

Davis, Christina, Assistant Professor at the Department of Politics and the Woodrow Wilson School of Public and International Affairs of Princeton University, focus on international relations and comparative politics, with a focus on trade policy

Mojduszka, Eliza M., “Food Quality Standards in domestic and international markets: Issues and Implications for East European Countries,” 2001. Department of Agricultural, Food and Resource Economics, Rutgers University