Shrimp Dumping
Conceptually, "dumping" occurs if a producer exports shrimp for less than it charges in its home market. Legally, dumping is defined as selling "at less than fair value." Petitioners must show that dumping is causing -- or threatening to cause -- "material harm" to U.S. producers.
The extent of dumping, called the "dumping margin," is calculated by subtracting the export price from the home-market price, then dividing the difference by the export price. So, if a foreign producer sells shrimp for U.S. $5 at home and $4 in the United States, its dumping margin is 25%.
Seems simple enough -- but the way U.S. shrimp tariffs might actually be calculated the next few months is anything but simple. Indeed, the inner workings of these calculations are known by only a select few officials and lawyers.
Market Economy Countries
In "market economy" countries like India and Thailand, actual prices and costs will be used. For shrimp exporters in these countries, analyses of prices will start with the first sales transactions between unrelated parties. Then, through a series of adjustments for freight, customs duties, and differences in shrimp or quantities sold, the U.S. and home market prices at the factory door will be determined and compared.
Home market sales, however, will be used only if aggregate sales in the home market total 5% or more of the total quantity or value of shrimp sold in the United States, and are made above cost. If there are insufficient home-market sales or sales are made below cost, the home-market prices will be based on sales to third countries or on a constructed value determined by the cost of production plus an allowance for profit.
Nonmarket Economy Countries
Shrimp exporters in "nonmarket economy" countries such as China and Vietnam will be treated differently because their prices and costs are viewed as being controlled by the government. Here information will be gathered about how much raw material inputs, labor, electricity, and the like are used to produce a single unit, such as a kilogram, of shrimp.
Value information will then be obtained from published data in a surrogate country with a comparable economy that is a significant shrimp producer. Based on the values from the surrogate country, a foreign market value will be calculated and then compared with the U.S. price.
The end result of all these complexities is that foreign shrimp exporters who charge prices in the United States that are identical to or even higher than those in their home markets could still be found guilty of dumping.
Data Gathering
To gather the huge amount of data needed, questionnaires are mailed to top producers, exporters, and importers in the countries named in the petitions. Their answers are used to calculate dumping margins and compile income analyses. Trends regarding employment, capacity utilization, production, shipments, and profits also are analyzed to determine whether imports have increased substantially and taken sales away from U.S. producers. Eighteen factors are considered in determining material injury, and U.S. officials have used five different approaches in reaching material injury determinations.
These questionnaires are voluminous and must be completed, translated as necessary, and returned under strict deadlines. But to retain any hope of exporting shrimp to the U.S. in the future, foreign producers must meet these demands. If an exporter is uncooperative, "adverse facts available" are applied as a punitive measure and typically result in the highest dumping margin alleged in the petition.
Investigations and Rulings
Two different U.S. agencies will conduct these investigations and issue rulings in two stages -- one preliminary and the other final. The determination of the dumping margin is made by the Department of Commerce, and the International Trade Commission makes the injury determination.
At the preliminary stage, which is normally concluded 160 days after the petition is filed but can be extended by 50 days, all that is needed is a finding of a "reasonable indication" of injury or threat of injury from the International Trade Commission and a preliminary dumping calculation from the Department of Commerce. If these findings are made, a preliminary order will set out the specific dumping margins for those foreign exporters included in the investigation and "all others" national rates for those not mentioned.
From this moment on, U.S. importers who buy shrimp from one of the nations being investigated will be liable to pay unknown, but potentially huge, final dumping duties. Moreover, if "critical circumstances" are found, this liable date will be set retroactively to early March 2004, and only those shipments that clear customs before then are sure to escape duties.
Any time after a preliminary order and prior to a final ruling, the investigation could be suspended if foreign producers agree to stop dumping. These agreements, which are facilitated by U.S. officials, normally set a price floor for imports from the companies affected. In the case of non-market economies, they may set an overall quota, as well. Between 1980 and 1996, approximately 20% of all antidumping cases in the U.S. were either terminated or suspended prior to reaching the final stage of the investigation.
Normally, final rulings are made within 115 days of the preliminary order. Here again, the deadline can be extended, this time by up to 60 days. While it is impossible to say what this ruling might be, some amount of "dumping" is almost always found.
Final dumping margins are determined 235 days after the petition is filed. Then a separate determination is made as to whether there is material injury or threat of injury. This final determination, however, no longer uses the "reasonable indication" criteria. So in most cases, the only chance for most foreign exporters to completely win is on the basis of lack of injury to the U.S. industry.
If a final order is issued, U.S. importers will have to make a cash deposit equal to the dumping margin for each entry. This payment, however, is not the final amount they have to pay.
Determining Actual Duties
The actual duty they owe will be determined during a review investigation that commences one year later in the anniversary month of the dumping order and every anniversary month thereafter. The period of investigation is typically the year prior to the petition being filed.
Other statutory criteria include the cumulative volume of imports from countries under investigation, as well as changes in the market share of those countries, U.S. prices and domestic sales, output, the return on investment, profit rate of domestic producers, cash flow, inventories, wages, ability to raise capital, and growth.
Reviews
Each year, therefore, duties will be recalculated based on actual price and cost data since the last dumping margin calculation. Administrative reviews are like the initial antidumping investigation with lengthy, on-site verifications and legal debate.
These reviews mean that actual liquidation can occur years after importation, and importers won’t know what they owe when they buy shrimp. If they are unlucky, they could be bankrupted. Annual reviews, however, give foreign producers some options, and those facing dumping orders often adjust their pricing strategy. As a result, original margins are almost always higher than later review margins.
Other Considerations
Even those exporters who are shut out of the U.S. by a final order can reenter the market by making a small sale of shrimp to establish a lower dumping margin. Once a small sale is made, the exporter can ask for a review investigation and receive a much lower cash deposit rate/antidumping margin. If three 0% dumping margins are obtained in a row, a foreign producer can apply to have its dumping margin revoked.
New exporters also can avoid dumping duties. If a new exporter was not named in a prior review or investigation and is not related to a company that was, it may, after making a small sale in the U.S. market, request a new shipper review investigation to obtain its own, lower dumping margin. New shipper review investigations have shorter time limits than normal reviews and allow U.S. importers to post a bond, rather than cash, when they import products from the new shipper.
If high duty margins are imposed, foreign producers will likely test the limits of the order. For example, if breaded and battered shrimp remain excluded from the case, foreign producers are likely to further process their shrimp before exporting it to the U.S. They may also attempt to circumvent the order by shipping shrimp through third countries. While this would be illegal, imposing penalties would be difficult, given the large number of producing nations not included in the case and the complexity of the market.
Conclusion
In the next few weeks, as the lawyers and market experts battle over obscure calculations and injury findings, smart shrimp producers and buyers will be thinking through the market implications and repositioning themselves to take advantage of the opportunities this case might provide.