Effects Of Trade Conflict

Published Date: 02 Nov 2017

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Swimming Upstream:

The Case of Vietnamese Catfish

Submitted to Ms. Janitha

Submitted by

Johnson Teoh Joo Sen J 11009005 A1

Lee Tai Hau J 09006214 N1

Pearl Tan Jue Imm

Tan Chee Khong

Tan May Yee J 10006919 A1

Submission date: 10th April 2013

Comments (to be filled by lecturer):

TABLE OF CONTENT

Introduction

Vietnam became one of the globalization’s success stories of the 1990s. The nation transformed itself from being a rice importer to the world’s second largest exporter and also an exporter of coffee that led to a decline on the poverty rate from 70 to 30 percent. The normalization of communication between the governments of Vietnam and United States resulted in American trade mission determined on increasing enterprise in Vietnam.

Such example would be the delegates saw much potential in Vietnamese catfish, with the country’s Mekong Delta and cheap labor providing a competitive advantage. With that, Vietnam captured 20 percent of the frozen catfish fillet in the market in the United States, lowering the prices.

However, Vietnamese farmers were forced to face trade war with Mississippi’s catfish farmers that caused the decreased sales of Vietnamese catfish in the United States.

Report

Trade Conflict

Causes of Trade Conflict

Mississippi’s catfish farmers threw Vietnamese catfish farmers a terrible trade war that includes product labeling and antidumping tariffs. This is because Vietnam has captured 20 percent of the frozen catfish fillet market in the United States, forcing the prices to fall.

Prior to that, both Vietnamese and U.S. farmers use similar techniques for raising and processing catfish. However, Vietnamese farmers have a significant advantage that lowers their cost of production because the fish are raised in their natural habitat and thrive without much farmer intervention. That is why Vietnam is able to supply large demand of catfish at a low price.

In addition to that, Vietnamese catfish fillet was priced around $1.50 a pound in the U.S markets, while catfish made in America wholesale was priced about $3.90 to $4 a pound. With that, more local restaurants were serving Vietnamese catfish due to cheap prices. According to a news report based on Simmons Catfish (an American catfish company), his processing plant decreased from 90 to 60 percent when the imports of catfish from Vietnam began to increase. Not only that, his capacity dropped tremendously from 680,000 to 300,000 million pounds (Carter, 2013), which weighs about 55.87%.

Effects of Trade Conflict

Suitable Policy to Overcome Trade Conflict

In this case, the Mississippi catfish farmers have used few policies to bring negative impacts onto Vietnamese Catfish market in US. Firstly, they used product labeling to attack Vietnamese Catfish market in the United States. After the declaration of the Department of Commerce, only American-born family’s catfish are called catfish, whereas other types of catfish can be called "tra" or "basa" which in Vietnamese, they mean catfish (Carbaugh, 2010). Besides that, they have also launched disinformation campaign and resulted in drop of sales of Vietnamese Catfish in United States.

Next, they have also persuaded the government to impose high antidumping tariff onto Vietnamese Catfish permanently even though they don’t have strong evidence to prove those Vietnamese catfish was dumped in US. Not only that, the government declared Vietnam as a nonmarket economy which sees Vietnam drop in economy. Until the 1990s, antidumping duties were a protection used by few rich countries like the United States, Canada, Australia and Europe. It is viewed as a form of backdoor protectionism that go against post-World War II trend of globalization in trading with lesser barriers. After the implication of such high tariff, Vietnam had dropped significantly in their export according to Appendix 1.1.

It was very bad move by the government as it was just a 20% of the catfish market. Instead of the antidumping tariff, they could use import quota to earn tax revenue from Vietnam and could limit the number of import from Vietnam. Import quota is a physical restriction on the quantity of goods that can be imported during a specific time period (Takacs, 1978). Import quota is usually allocated to specific countries and it is known as a selective quota. The quota allowed generally puts a limit to import which would occur under free-trade conditions (Assaf, 2006). By issuing import quota, the price of Vietnamese "tra" and "basa" will increase. Besides that, for the government to administer an import quota is releasing an import license. Each license can specifies the amount of imports allowed and the total amount allowed should not exceed the quota. License can be sold to importing companies at a competitive price and thus, the government can earn a handful from releasing the license. Furthermore, American government could earn from the quota rent and protect their Mississippi catfish farmers at the same time.

Not only selective quota, the government can also grant subsidies to their catfish producer to help improve their competitiveness in the market (Todaro&Smith, 2009). A subsidy is aid for producers to their business. Government gives out subsidies to prevent the failure of that industry or in this case, the catfish industry. Providing domestic catfish farmers a cost advantage allows them to market their catfish at lower price. There are two types of subsidies and one of them is domestic production subsidy which should be used by the American Government. The purpose of a domestic production subsidy is to encourage the output and therefore strength to compete with the Vietnamese catfish farmers. However, subsidies are not free; it is given out of tax revenues paid by the public. Thus, a subsidy may not be a prior choice for government.

Reflection

Throughout the Catfish’s case study involved between Vietnam and United States we understand the trade conflict happened to anti dumping tariff policy applied to Vietnamese catfish farmers causing high tariff to be paid. Furthermore Vietnam is a developing nation and this action applied by the U.S Department of Commerce certainly will affect the country economy.

On February 19th 2013 Malaysia government had imposed an anti dumping policy on steel wire rod that imported from Taiwan, China, South Korea and Indonesia. Table 1 shown Ministry of International Trade and Industry (MITI) had imposed tariff towards that few countries as high as 33.62% (Anti-dumping tax imposed on cheap steel wire imports, 2013). The reason Malaysia government apply that policy because the price of imported steel wire rods are much cheaper and it is lower than production cost, therefore Malaysia government tried to protect the local producer and maintain a healthy industry as they can.

Besides steel wire rods issue, some other countries do also face this problem too such as China, lauched an review of anti dumping tariffs on certain food additives from indonesia and Thailand because the tariffs were too low. Tariffs rate that was implemented previously was up to 6.8%, depending on the manufacturer (Xinhua, 2012). As on European side, EU started to impose anti dumping policy on Chinese ceramic tableware. European manufacturers have suffered material injuries due to the imports and tariffs were set up to 39.7% as report from Bloomberg (EU launches anti-dumping tariffs on Chinese ceramic tableware, 2012).

However, two countries were mentioned above was a developing country and as for the country who launched anti dumping policy the pro side is they able to protect the domestic manufacturers from foreign company selling lower than their production cost. Meanwhile at the con side it limits the choices of supplier and also it may affect the diplomatic relationship with trade partners (Amadeo).

Lastly, most of the countries who listed as using dumping methods are countries who rich in certain particular resources. With such resources allow them to produce in mass production and achieve economy of scale. But on the nation who applied anti dumping policy, they are more likely bounded by the policies such as minimum wages that happening in most western countries. In summary, government and resources plays an important role in international trade on behalf of the country. Hence it is impossible to protect both but only minimize the loss.

Conclusion

Appendix

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Appendix 1.0

Appendix 1.0

References

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Vietstock. (2013, March 20). DOC raises import tariff on Vietnam’s catfish, but exports won’t decrease. Retrieved April 6, 2013, from VIET Stock: http://indochinastock.vn/2013/03/doc-raises-import-tariff-on-vietnams-catfish-but-exports-wont-decrease-974-145573.htm

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China reviews anti-dumping tariffs on food additives (2012, October 30). Retrieved April 8, 2013, from http://www.chinadaily.com.cn/business/2012-10/30/content_15856347.htm

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Todaro, Michael P and Smith, Stephen C. (2009). Economic Development (10th ed.).

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Wendy E. Takacs (1978), The Nonequivalence of Tariffs, Import quotas, and Voluntary

Export Restraints, Journal of International Economics, Volume 8, Issue 4 November 1978, Pages 565-573, ISSN 0022-1996, 10.1016

Retrieved from http://www.sciencedirect.com/science/article/pii/0022199687900079