Reference no: EM131380779

The U.S. Catfish Industry
The cultivation of water plants and animals for human use started thousands of years ago. Globally, aquaculture's growth more than doubled in the 1990s (to more than 35 million tons a year). To meet the demand for improved quality protein sources, scallops, oysters, salmon, and catfish are being raised in controlled environments. Farm-raised fish is of high quality and, unlike oceancaught fish, is available all year long. U.S. aquaculture production has grown more than 49 percent since 1991.1 Aquaculture is the fastest growing segment of agriculture in the United States. Farmed seafood makes up about a third of the seafood consumed in the United States. About two thirds of the shrimp and salmon and almost all of the catfish and trout consumed by Americans is raised in ponds.2 Thick-skinned, whiskered, wide-mouthed wild cat- fish can be found in the wild in channels and rivers of the southern United States Wild catfish is typically described as pungent, bony, and muddy.

However, as a result of aquaculture technology, catfish is now an economical farm-raised species that tastes mild. Catfish are raised in clay-based ponds filled with fresh water pumped from underground wells. They are fed an enriched, high-protein grain-based food. Their firm, white flesh can convey strong flavors and stands up to a variety of cooking techniques, which makes it suit virtually any ethnic cuisine.3 Americans consumed about 275 million kilograms (more than 600 million pounds) of catfish in 2000,4 most of which came from 150,000 acres of catfish ponds in the United States, mainly located in Mississippi, Arkansas, and Louisiana. The U.S. catfish industry is estimated to turn over $4 billion worth of fish product a year. Catfish is especially popular in Southern dishes, but its use has been growing also in the Midwest. Filets are now available in New York supermarkets and fish stores. One recent poll placed catfish as the country's third favorite seafood, beaten only by shrimp and lobster.

The Issue
The United States is a leading market for Vietnamese cat- fish (followed by Hong Kong, the EU, and Australia). In 2001 the United States produced 270.5 million kilograms (597 million pounds) and imported about 3.7 million kilograms (8.2 million pounds) of catfish out of which ninety percent, about 3.2 million kilograms (7 million pounds), came from Vietnam. By the end of 2001 prices for U.S. catfish had dropped to 50 cents a pound, about 15 cents below the cost of production and about 30 cents below the price of 2000. U.S. producers blamed the Vietnamese for the falling prices.6 Vietnamese catfish exporters and importers in turn blame U.S. producers for dragging down prices. They say that the Americans are mainly at fault for expanding inventories up to 30 percent, a figure obtained from the National Agricultural Statistics Service (https://www. usda.gov/nass).

Vietnamese fish importers also claim that American catfish growers are to blame for their own difficulties because they sell the domestic fish in only a few states. "It is the failure to adequately market the product effectively throughout the United States," says Andrew Forman, president of Boston-based Infinity Seafood, LLC. According to a report by Consulting Trends International, a California-based consulting firm, the price drop is "primarily the result of higher domestic catfish inventories in the United States, which will depress prices through the end of 2001 and 2002."

The American catfish industry tripled in size from 1985 to 2001. Hugh Warren, vice president of the Catfish Institute of America, says that this growth was strictly due to the industry's marketing effort of $50 million. He feels that importers get a free ride.7 The U.S. industry offers 15,000 jobs that earn $8 an hour in the poorest parts of America. These jobs are being "stolen" by cheap Vietnamese imports.8 The U.S.-Vietnam Bilateral Trade Agreement (BTA), approved by Congress, was signed by the two countries on July 13, 2000. The BTA, signed by President George W. Bush in 2001, opened the door for increased bilateral trade. In the very first year, trade between the two countries doubled. The BTA reduction in tariffs resulted in an increase from 5 million pounds of frozen fillets in 1999 to 34 million pounds in 2002-capturing 20% of the U.S. market.

One major exception to the framework of the BTA is the lack of a formal and neutral dispute settlement mechanism. The BTA provides for a "Joint Committee on Development of Economic and Trade Relations." The Committee is given the power to serve as a forum for consultation over problems regarding the agreement. In an attempt to change this situation, American catfish farmers, industry associations, and supporting organizations came to Washington to call on officials at the State Department, the Commerce Department, the Food and Drug Administration, and Congress for help. They waged an advertising campaign against their Vietnamese competitors in order to convince the public that Vietnamese catfish is low quality and raised in dirty waters

Congressional Reaction: The Labeling Dispute
The support from Congress was swift. In December 2001 an amendment was added to an appropriations bill that barred the Food and Drug Administration (FDA) from spending money "to allow admission of fish or fish products labeled in whole or in part with the term ‘catfish' unless the fish is from the Ictaluridae family." The senators from the South, who introduced a labeling bill, claimed Vietnamese fish to be as different scientifically from catfish "as cow from a yak."10 Supporting a different view, Senator Phil Gramm (R-TX) characterized the Vietnamese catfish as follows: "Not only does it look like a catfish, but it acts like a catfish. And the people who make a living in fish science call it a catfish. Why do we want to call it anything other than a catfish?"11 This meant that the FDA needed to identify different kinds of catfish.

In January 2002, under Congress' direction, the Food and Drug Administration (FDA) published "Guidance for Industry" regulations on how the imported fish should be labeled. Under the regulation, Flat Whiskered Fish is an acceptable substitute for Flat Whiskered Catfish; but Katfish or Cat Fish are not. Instead, importers, restaurants, and grocery stores will have to use a name such as "basa," which is another name to call catfish from the Pangasius (Pangasiidae) family. The 2002 U.S. Farm Act prohibited non-ictaluridae fish from being marketed and sold as "catfish" in the U.S. While U.S. catfish producers were counting on the labeling decision to decrease sales of Vietnamese catfish, the result was just the opposite, as sales of Vietnamese "basa" or "tra" actually increased. It seemed that the term "basa" had a special marketplace intrigue to it. The amendment and the regulation were not good news for a number of concerned players (restaurants, consumers, and people in the catfish industry).

An article appearing in The Far Eastern Economic Review (December 6, 2001) noted that declining prices in the U.S. caused U.S. catfish producers to report a 30 percent (2001-02) decline in the average earnings from a kilogram of catfish. As the owner of Piazza's Seafood World, a New Orleans based importer, put it: "Nobody in the U.S. owns the word ‘catfish.'"12 However, Vietnam was still free to export catfish to the U.S., as long as it was called something other than catfish-that is, until the special tariffs arrived.

When Is a Catfish a Catfish?
In order to identify different kinds of catfish, the FDA sought expert help on the question. Before promulgating its regulation, it consulted Dr. Carl J. Ferraris of the ichthyology department at the California Academy of Sciences. Dr. Ferraris's response was that there was no scientific justification to treat or rename catfish from Vietnam differently than that of the United States.

According to U.S. catfish farmers, the only true catfish belongs to the family with the Latin name Ictaluridae. The Vietnamese variety is in the family Pangasiidae, which are "freshwater catfishes of Africa and southern Asia." Vietnamese catfish farmers claim that they have created a new agricultural industry, turning their rice and soybean fields into profitable fish farms in the poor regions of the country. By giving up crops, they gave up heavy use of chemical fertilizers and pesticides, which is good for the environment. They also gave up agriculture subsidies at a time when lawmakers wanted to get the government out of farming.

U.S. catfish farmers say their catfish is raised in puri- fied water ponds, which have to be tested by federal agencies and meet the standards of the Catfish Institute. The U.S. catfish industry must go through inspections from 17 federal agencies (including the Department of Commerce, the Food and Drug Administration, and the Environmental Protection Agency). By contrast, the Vietnamese imports have only to meet FDA approval.15 The Vietnamese catfish are raised in cages that float in marshes in the Mekong River; some of the senators from the South talk about the possibility of toxins from Vietnam in that "dirty" river.

Department of Commerce and International Trade Commission
Less than a year after winning the Congressional labeling regulation, the Catfish Farmers of America (CFA) applied to the U.S. government for additional protection. It seems that the labeling decision was not having the desired result. By this time the Vietnamese share of the U.S. market had actually dropped to 12 percent. But that 12 percent was seen as continuing to drive down the cost (and profits) of catfish in the United States. The request to the International Trade Commission (ITC) was for import tariffs as high as 191 percent. In addressing the anti-dumping complaint from the CFA, the Department of Commerce (DOC) relied on certain necessary assumptions. In assuming that Vietnam was a non-market economy (and not looking at the Vietnamese seafood industry separately), the DOC used data from India and Bangladesh to establish what would be a "fair price" for Vietnam's exports of catfish to the United States. The initial decision of the DOC was to impose tariffs ranging from 38 percent to 64 percent on four Vietnamese exporters. The subsequent step was for the ITC to confirm the DOC's actions.

In February 2003, Vietnam halted exports of catfish to the U.S. At the time of the announcement, prices of Vietnamese catfish had increased by more than 20 percent in the U.S. market. Nguyen Huu Dung, General Secretary of the Vietnamese Association of Seafood Exporters and Producers (VASEP) noted that "we are forced to stop exporting frozen catfish fillets because our U.S. importers cannot afford to pay the high tariffs." Vietnamese seafood businesses and producers were quick to denounce the actions of the DOC. The Vietnam Ministry of Trade, Ministry of Fisheries, and VASEP called the actions an "act of protectionism."

Rather than wait for the ITC to confirm the decision of the DOC, VASEP offered to resolve the dispute by voluntarily offering an export quota in lieu of tariffs. The offer to settle fell on deaf ears in the United States and the ITC imposed tariffs of up to 64 percent on "basa" or "tra." The ITC's final vote on July 23, 2003 was 4-0. An editorial appearing in The New York Times (July 26, 2003) condemned the action of the ITC by referring to the decision as "a final flourish of hypocrisy to its efforts to crush the Vietnamese catfish industry under a mountain of protectionism." In an earlier editorial (July 22) the publication noted that any decision upholding tariffs would make Vietnam become "yet another case study in the way the United States, Europe, and Japan are rigging global trade rules so they remain the only winners."

The Issue and Free Trade
Vietnam's catfish industry provides a useful example of how global cooperation can enhance participation in global business. An Australian importer, for example, taught the Vietnamese how to fillet catfish, French researchers worked with a local university on low-cost breeding techniques, and Vietnam's leading catfish exporters depended on industrial equipment from the United States.

However, a stumbling U.S. economy has made American farmers, along with many others in a number of industries, very sensitive to surging imports, and the catfish dispute represents a case of domestic politics' alignment against free market forces.

Critics in both Vietnam and the United States say that the catfish issue is an example of protectionism and hypocrisy, undermining the free-trade policies most recently espoused by the United States at the World Trade Organization talks in Doha. "After spending years encouraging the Vietnamese that open trade is a win-win situation, it would be a shame if immediately after the trade agreement is signed the U.S. shifts to a protectionist ‘we win, you lose' approach on catfish," says Virginia Foote, president of the US-Vietnam Trade Council in Washington.19 In the ongoing dispute over how to manage global trade, agriculture and its cousin aquaculture are very sensitive issues. Industrial nations use farm policy not only to promote their agribusinesses overseas but also to protect their markets and farmers at home. European countries have used their agricultural subsidies to defend their countryside from urban invasion, whereas developing countries try to raise their standard of living by breaking into those markets with less expensive products.

Questions
1. Was it fair for the Vietnamese catfish importers to step in and capture market share while the market has been expanded due to the significant efforts and investments of the domestic industry? How should quality considerations (if quality differences exist) be reconciled?

2. The label regulation would probably make consumers pay a higher price than they would have paid otherwise. Is this right?

3. Can any industry in the United States influence lawmakers to take decisions in their favor?