Shrimp industry could lose $35 million because of US changes on anti-dumping

 The important points about the recent ruling are:

1. The DOC changed its methodology to again in response to losing ‘zeroing’, in a new calculation process that almost always raises duty rates.

2. Under the new system, NMFS searches a computer database of transactions for companies they choose. No longer do companies have to be suggested by plaintiffs to be included in an administrative review.

3. Companies that were not included in the preliminary review – either because they are exempt or were not suggested to be reviewed, are not affected by this decision.

4. The current decision is preliminary, and will not change duty rates until a final decision is published, which will be at least four months from now, and possibly a little longer if time extensions are granted.

5. Once a final decision is made, the new rates will be applied to current year imports for customs bonds.

All of these issues will be discussed on the upcoming National Fisheries Institute Importers committee call on April 2. Contact NFI for details on call.

How can the DOC – supposedly existing to support American industry – apply what amounts to a $35 million fine to the parts of the shrimp industry.

They are doing this at a time when the domestic shrimp industry sells every pound of shrimp they can land for near record prices.

What happened is a tale out of Franz Kafka – of a trade bureaucracy run amok.

When shrimp anti-dumping duties were first imposed in 2004 against six countries (India, Vietnam, China, Thailand, Brazil and Ecuador), the DOC used a method to calculate duties that disregarded high prices, and only focused on below average prices.

If you sold an item with a cost of $3.00 for example, and 75% of your sales were at $4.00, and 25% of your sales were at $2.50, your gross revenue would be $3.50 per lb., well above your actual cost of $3.00 per pound. In this case, a dumping charge would fail, because the product was obviously being sold at higher than cost. Under this test, virtually none of the original countries would have even been assigned duty.

But the DOC engaged in a practice called zeroing. In our example, the shrimp exporter would have all its sales in the US at the $4.00 level disqualified, or reduced to zero. The remaining 25% of sales – made at a loss of $.50, would be counted by the DOC as dumping. So the exporter would be assed duty on 100% of their products as if they had sold all of them at $.50 cents below cost.

Over the course of several years, this method was found to violate WTO rules, and even US courts found against it. So it was thrown out, and the DOC had to go back to using the entire average cost of a product to calculate a dumping margin, if any.

Naturally, for most exporters the dumping margin faded away to zero or a diminimus rate of 2% or less.

US shrimp importers got used to low or minimal duty rates. Ecuador got out of the program entirely. In Thailand, many companies had duty rates of 2% or less; in India and Vietnam some companies had zero duty. It seemed like the huge headache of the shrimp duties was going away, and some importers may have relaxed too soon.

For the DOC came back with a substitute for zeroing – which will now take several years to litigate and will cause immense damage in the meantime.

The new DOC methodology for anti-dumping is called differential pricing analysis. Instead of using the former average cost to average sale price calculation, the differential analysis is a computer program that looks at the range of price differences between the high and low price for each item for each company.

Every respondent or company assessed a specific duty has to submit a computer file with every transaction they made over the course of the year. The DOC then analyzes the difference in prices for the same item.

The DOC does three things. First it looks at the range of prices (differential) for a particular item for a respondent company, and compares it to the range of prices for that product sold by others in the US. The statistical difference is then measured as being small, medium or large.

If the variation in price for company A is deemed large, compared to other sellers, the DOC thinks there may be dumping. In this manner they have gone back to discounting the high price (as they could with zeroing) , because now they are not averaging the high price, they are simply looking at the differential that exists between the highest and lowest sale price for any item.

Quoting the DOC, “Contrary to the Minh Phu Group and Stapimex’s claim, it is reasonable for the department to consider both lower priced and higher priced sales in the Cohen’s d analysis because higher priced sales are equally capable as lower priced sales to create a pattern of prices that differ significantly.”

If the company has a large difference, the DOC then does a second series of tests on all the various products, i.e different sizes of shrimp. In the case of Minh Phu, in Vietnam for example, the Dept. found 63.4% of its items met this test, i.e. had a large price variability compared to other sellers.

Here the DOC has three buckets – 0-33%; 33% to 66%; and 66% and above.

For a company in the 0-33% bracket, nothing changes — the old averaging method is used.

In the mid range bracket, like Minh Phu, the duty is calculated using the differential on the products that are deemed to have a large variation, and the duty is calculated based on average for the rest. Their new preliminary rate went from zero to 4.98%.

Above 66%, 100% of the products are calculated using the differential method which almost always produces a higher anti-dumping rate than the averaging method without zeroing.

In the case of the other Vietnam respondent Stapimex, their number was 69.4%, meaning 100% of their products were treated in the new manner. As a result, Stapimex went from zero to 9.75%.

What does this mean?

It means that the DOC has found a new way to penalize the American shrimp industry, until this method has been challenged and overturned in the courts.

We looked at the terrible economic impact of this decision. If the preliminary duties stand, which they may because the legal consensus is that this new method is harder to fight than the old averaging method, then those who imported shrimp from India, Thailand and Vietnam in 2012 get a $35 million penalty.

India, during the subject period (Feb 1, 2012 to Jan 31, 2013) exported $565 million worth of shrimp to the US. About 40 companies imported more than 1 million pounds of Indian shrimp, with an average of about 3.5 million pounds. The Urner Barry shrimp index for 2012 averaged $3.88, so an increase in duty from zero to 2% will cost these importers, and the smaller importers, around $11.3 million, if nothing changes. Some of the importers of record were Indian companies with US offices. In that case, they will have to absorb these costs. But importers who took direct ownership of the product will be on the hook.

For Thailand, the value of shrimp exports during this period was $669 million, and again, 38 companies imported more than 1 million pounds of Thai shrimp based on Urner Barry’s Foreign Trade Data. The average volume of imports for the larger companies was 8.9 million pounds each. The change in duty from zero to 1.1% will cost these companies $7.36 million.

For Vietnam, the value in the period was $331 million. Twelve companies imported more than 1 million pounds of shrimp from Vietnam. The average larger company imported 6.8 million pounds. The cost of the duty increase, from roughly zero to 5%, if the decision stands, would mean additional duty payments of $16.55 million.

For a country that ostensibly supports a well regulated market and that decries the crony capitalism so prevalent in countries where businesses have to pay bribes to operate, it is hard to justify an after the fact fine of $35 million to companies who did nothing more than follow the rules.

This penalty only came about because the DOC decided to change the rules, after its previous practices were found illegal.

The larger companies — i.e. the big exporters who have their own offices here — can afford to absorb this penalty, no matter how unfair. It is the smaller exporters – those who are more entrepreneurial and who may have seen an opportunity and jumped on it, who will get hurt.

This whole shrimp anti-dumping case was a travesty from the beginning, and the latest chapter of changing the rules for calculating duties is par for the course.