A Fishy Approach to Fair Trade
By Sebastian Mallaby
Monday, March 29, 2004; Page A23
One of the great achievements of Sen. Robert Byrd, that august pillar of Senate decorum, has been to unite the ethic of ambulance-chasing lawyers with dumb trade protectionism. Thanks to a law he jammed through in 2000, the old procedure by which weak U.S. companies could seek tariffs against cheap imports has been spiced up: The receipts from such "anti-dumping" duties now get paid to the complaining companies rather than to the government. That way, you see, uncompetitive firms get trade protection plus cash prizes. Over the past three fiscal years, protectionist plaintiffs have been awarded more than $800 million, and their lawyers have made out like bandits.
The rest of us have not made out so nicely. Thanks to anti-dumping tariffs — of which there are currently more than 100 relating to iron and steel alone — consumers pay higher prices for imports. Because the revenue from such tariffs no longer flows to the government, taxpayers end up covering the shortfall. On top of that, the World Trade Organization has ruled Byrd's cash prizes illegal, so foreigners will soon get the go-ahead to hit the United States with sanctions. But to savor the perversity of Byrd's handiwork in all its glory, consider a grand fight over a humble food that has become a symbol of lunatic trade policy.
The humble food is shrimp, which used to reach you rarely and at vast expense, having been hauled out of the Gulf of Mexico. Bit by bit, the industry has changed: Shrimp are now cultivated in artificial ponds near the ocean, though the cost of coastal real estate in the United States has prevented domestic shrimp farms from taking off. Instead, developing countries have stepped up: Our leading supplier is Thailand, where 13 percent of the people live in poverty; next comes Vietnam, where the poverty rate is 37 percent and the shrimp industry reportedly employs 9 million people. Thanks to these efficient suppliers, shrimp has migrated from exclusive restaurants to the shelves of Costco. Vietnamese peasants get jobs; American teenagers munch their products as they goggle at TV: This is globalization.
As always with globalization, someone has a grievance. Traditional American shrimpers are hurting, because cultivated shrimp are driving down prices. It's hard to blame "unfair" behavior by the Thais or Vietnamese, who are simply more efficient. But the U.S. trade laws have an elastic definition of "unfair," and the Byrd provision creates a double incentive to stretch it. Sure enough, an American shrimping group has persuaded a federal trade tribunal, which generally sympathizes with domestic plaintiffs, that underhanded methods in six developing countries are responsible for its pain. Now the Commerce Department, which is even more biased against imports, gets to determine the extent of the dumping.
This is where things get interesting. "Dumping" usually means selling a product for less than it is sold for at home. But there is no home price for frozen shrimp in Thailand, where shrimp are eaten fresh. So the Commerce Department apparently intends to take, as a proxy, the shrimp price in Japan: If shrimp sell for less than the Japanese price in the United States, this will be deemed dumping. Next, since the price gap with Japan is actually not much, Commerce observes that shrimp in Japan are generally sold raw with their head and shell on, whereas shrimp sold in the United States are processed. So the Commerce Department plans to adjust the U.S. prices, putting the shells and heads on again and uncooking them, too. Then, safe in the knowledge that everyone's confused, it will declare a big dumping margin.
Meanwhile, Commerce will apply a second kind of alchemy to Vietnam. Like Thailand, Vietnam has no domestic market for frozen shrimp. But instead of using Japan's price as a benchmark, Commerce will figure out the cost of shrimp production in Vietnam, undaunted by the fact that there are no real prices in a communist economy for inputs such as electricity. Precisely because this cost calculation is impossible, it affords Commerce maximum leeway: It can derive costs by looking at supposedly comparable countries, then announce whatever answer it feels like.
The dumping laws are odious at the best of times: They drive prices up for U.S. consumers and destroy jobs in the U.S. industries that are fueled by the imports. But the shred of justification is that they are "fair" — that they level the playing field in an objective way between American producers and imports. The hocus-pocus methods at Commerce show how absurd that claim of fairness is. U.S. trade laws are designed to kneecap consumers and reward lobbies. There is nothing fair about them.
That's not how Congress sees things. Fully 70 senators recently signed a letter supporting the egregious Byrd law. So much for the senator's claim that there have been two great senates in the history of the world — Rome's and, uh, America's.