Senators take aim at Charlie the Tuna

 Tuna Tiff

March, 2002: Cover Story

By Greg Rushford

Published in the Rushford Report

           How high should U.S. tuna tariffs be?

            If you simply follow

rational economics, it’s a no-brainer: Tuna tariffs should be zero, and this rate should apply to all of America ’s trading partners equally.

            But on Capitol Hill, politics trumps economics and so the issue of tuna tariffs has become complicated. The story illustrates the pitfalls of what economists call diversion of trade, where lawmakers distort global trade flows by picking winners and losers. It’s a simple taxation game: Congress fixes tariff rates through so-called “free trade” bilateral or regional agreements like Nafta or the Caribbean Basin Initiative, so as to place other countries at a competitive disadvantage, and to favor some corporations at the expense of others.

            Bumble Bee Seafoods

and its parent corporation,

ConAgra Foods, are lobbying lawmakers to fix tuna tariffs to complicate the business of rival StarKist Seafood Co. in Ecuador . StarKist, which is owned by H.J. Heinz, is the big tuna in global markets, selling more than $1.1 billion annually, compared to Bumble Bee’s $750 million, according to industry reports.

            Of course, when lobbyists and lawmakers try to fix markets, there are always unintended consequences.

            What began as a Cannery Row that was only supposed to involve Ecuador is also becoming something of a broader diplomatic row. Other important U.S. interests have been drawn into the equation, from fighting the war against narcotics in Latin America to the war against Muslim terrorists in the southern Philippines .

            Senior diplomats from other tuna countries like Thailand and Indonesia are also watching what happens to Ecuador with concern. The Asians already face high tuna tariffs from the United States and Europe . Now they are fearful that Congress could end up cooking their exporters even more.

            And even though the U.S. tuna industry has moved offshore, officials in American Samoa — a U.S. territory since 1900 that can export to the United States duty free — are wrapping themselves in the flag. Duty-free Pago Pago wants tuna tariffs as high as possible for everyone else in the business.

            On Capitol Hill, Bumble Bee has already thrown

StarKist’s famous Charlie the Tuna into hot political waters.

            Later this month, when the Senate is expected to take up the Andean Trade Preference Expansion Act, a group of Finance Committee members led by John Breaux (D-LA) will attempt to ensure that tuna tariffs remain high. The target is Ecuador , as the other Andean nations — Colombia , Bolivia , and Peru — aren’t major tuna exporters.

            Breaux is a savvy legislator with a reputation for carrying water for individual corporations, once famously joking that while his vote was not for sale, it could be “rented.” This time, Breaux is fronting for Bumble Bee. The ConAgra subsidiary sees a commercial advantage for itself in continuing high U.S. tariffs on tuna canned in Ecuador, which presently range from 12.5 percent (tuna packed in water) to a Smoot-Hawley level 35 percent (packed in vegetable oil).

            Breaux’ measure is designed to keep Ecuador ’s tuna tariffs high and drive down StarKist exports from that country. It passed the Finance Committee by one vote when the Andean trade bill was marked up in December 2001. Eleven senators — including Democrats Max Baucus (MT), Majority Leader Tom Daschle and Jay Rockefeller (W.VA); joined by Republican protectionists like Utah’s Orrin Hatch and Maine’s Olympia Snowe — defeated a proposal by Bob Graham (D-FL.) to phase out Ecuador’s tuna tariffs to zero by 2008. (The House Ways and Means Committee, however, defeated Breaux’ Bumble Bee proviso, which was offered in markup by New York Democrat Charles Rangel. If the Senate votes for the continued high tariffs, the issue will ultimately be settled in a House-Senate conference.)

            None of the lawmakers I called who supported the Breaux amendment attempted to offer an economic rationale for their vote.

            To be sure, there really isn’t an economic rationale.

            But there is a lot of politicking going on.

            Bumble Bee has retained Diane McRee, a Washington lobbyist and a former Breaux aide who is still thought to be personally close to the senator. On July 23, 2001 , McRee and J. Douglas Hines, a Bumble Bee executive based in Louisiana , each chipped in $1,000 to Breaux’s political action committee, according to records compiled by the Center for Responsive Politics. Hines gave Breaux another $250 on November 19, a few weeks before the Andean legislation was marked up in the Finance Committee.

            Although Breaux himself is not up for reelection until 2004, his Mainstream America PAC — which gave $64,300 to Democratic senatorial candidates in the 2000 races — is one of the sources of the Louisiana legislator’s influence with his colleagues.

            Hogan & Hartson’s Bob Kyle, a former Clinton national security official, has also done some advocacy work for Bumble Bee.

            Bumble Bee has also retained Sher & Blackwell’s Jeffrey Pike. While Bumble Bee is supporting the Breaux amendment, Pike says that the company would also support a flat rate of perhaps 10-11 percent for all canned tuna, applied equally to all tuna exporters. Such a tariff would still be high, but at least it would have the virtue of being less trade distortive than the present system of different tariffs for different trading partners.

            To protect StarKist in its opposition to the Breaux amendment, H.J. Heinz has turned to Charles Hansen, another veteran of Washington ’s trade wars. Hansen was director of congressional relations at the International Trade Commission in the first Clinton administration. Hansen, who is now affiliated with National Environmental Strategies, says that his client recognizes that the world is moving toward zero tuna tariffs.  

            The following thumbnail summaries show where the various players are coming from, while illustrating the politics of trade diversion.

            Ecuador . The Andean tuna processor complains (rightly) that it is presently at a competitive disadvantage because the United States has already agreed to phase out tuna tariffs for Mexico and Trinidad and Tobago by 2008, under the Nafta and Caribbean Basin preference accords, respectively. Ecuador reasons that there is no honest reason for the U.S. Congress to treat its cannery workers harshly, while favoring those from Mexico and Trinidad and Tobago . “This is not only a matter of economics,” Heinz Moeller, Ecuador ’s foreign minister declares. “This is vital to our national security,” the foreign minister adds, referring to Ecuador ’s cooperation with the United States in the war against illegal narcotics.

            Bumble Bee and StarKist. Bumble Bee has found a way to work around high U.S. tariffs in its own operations in Ecuador . Some 2,000 Bumble Bee tuna workers in Ecuador turn the fish into fillets, after gutting, cleaning, and cooking them. The fillets are then exported to Bumble Bee facilities in southern California and Puerto Rico , where they are put into cans, a job mostly performed by machines. Bumble Bee’s Santa Fe Springs , California operation is the only one of its kind left in the United States . While the United States has high tariffs on canned tuna — dating to the days when there were canneries here to protect — the fillets are taxed upon entry in U.S. ports at a rate of only about 1.5 percent.

            Bumble Bee also is positioned to export duty-free to the United States from Trinidad and Tobago under the CBI preference scheme. Europe , which has a 24 percent tariff on tuna exports for Asian exporters, also grants duty-free preferences to Caribbean countries like Trinidad and Tobago . So Bumble Bee is happy the way things are.

             But StarKist has plans to export more processed tuna from Ecuador to the United States , which are packed in attractive pouches (the hot new look on tuna shelves in American supermarkets). Those pouches are taxed upon entry into U.S. ports at the existing 12.5- 35 percent range. From Bumble Bee’s perspective, this is the way that rival StarKist should be treated. Bumble Bee is saying to Uncle Sam: Don’t tax us, tax Charlie the Tuna.

            The Asian tuna countries. Hold on, say major tuna exporters like the Philippines , Thailand , and Indonesia . These Western Pacific countries are in the heart of the world‘s largest tuna fisheries. In 1999, the maximum sustainable light-meat tuna yield in the Western Pacific was 2.359 billion short tons, according to the National Marine Fisheries Service. This compares to 612 million short tons in the Eastern Pacific (where the Latin Americans fish).

             The Asians say that it is already bad enough that the Europeans tax their canned tuna at 24 percent. Now, if the United States phases out its high tariffs for Ecuador — on top of Mexico and Caribbean tuna exporters — and refuses to do the same for Asian exporters, Asian tuna industries will be hurt.

            The Philippines exports some $180 million annually in tuna, of which $90 million goes to the United States . It would be “unjust, unreasonable, and counterproductive” for the Congress to legislate a competitive disadvantage for Philippine tuna workers, says Alberto del Rosario, Manila ’s ambassador in Washington .

            Roughly 17 thousand people in General Santos City and Cotabato in southern Mindanao — Muslims, mainly — work in the Philippine tuna industry. “If we are taking livelihoods out of Mindanao we are exacerbating the poorest people there,” del Rosario points out. “The thing that I find unreasonable about this is that the Philippines is in partnership with the United States in the war against terrorism.”

            Thailand agrees with its neighbors, mostly. Thailand exports $180 million of canned tuna to the United States annually. The Thai Food Processors’ Association argues that giving Ecuador duty-free status while keeping tariffs high for Thailand “would create an unfair advantage for the Andean nations in supplying tuna to the U.S. market.”

            But not everyone in Thailand has reason to be so upset.

            Thai Union Frozen Products, which owns the San Diego-based Chicken of the Sea, is happy to export canned tuna duty free to the United States from its operations in American Samoa . Chicken of the Sea announced last August that it would close its cannery near Los Angeles . This was the last plant in the continental United States that took in whole fish for processing. According to the company’s announcement last October, the closure meant that 250 American workers lost their jobs.

            American Samoa . Wait a minute, says American Samoa . Even though many Americans might not be able to find Pago Pago on a map, we are also a U.S. territory: American Samoan jobs are American jobs — and there are more than 5,000 of them, accounting for almost all of the territory’s exports.

            American Samoa sees nothing wrong with exporting tuna to the United States duty free, while Asian tuna exporters pay high tariffs. Indeed, the American Samoan economy seems to be largely a creature of the U.S. Congress. The U.S. tax code’s section 936, for example, gives breaks worth millions of dollars to companies like Chicken of the Sea and StarKist that have set up tuna operations in American Samoa .

            Accordingly, Chicken of the Sea supports Bumble Bee’s lobby campaign aimed at maintaining high U.S. tariffs on Ecuador . Ecuador alone could wipe us out, the Samoans contend. Only StarKist supports Sen. Graham’s proposal to cut tuna tariffs for Andean nations to zero by 2008.

            The nightmare for the U.S. territory’s representative in Congress, Eni Faleomavaega, is that if a free-trade regime comes to tuna, StarKist and Chicken of the Sea would eventually move out of American Samoa .

            Faleomavaega worries that the hourly minimum wage in American Samoa is $3.20 per hour, compared to 69 cents in Ecuador , 48 cents in Thailand , 43 cents in the Philippines , and only 14 cents in Indonesia . Please keep tariffs on Ecuador — and everyone else — high, the Samoans ask Congress.

            “At present, tuna processing is the only industry holding together the economy of American Samoa ,” Faleomavaega has said in personal “Dear Colleague” letters to senators who are considering giving Ecuador tax breaks in the Andean trade legislation. “ American Samoa ’s only advantage in the global marketplace is duty-free access to the U.S. market.”

            More than economics is at stake, Faleomavaega reasons. American Samoans who have served in U.S. Armed Forces “have paid the ultimate sacrifice,” Faleomavaega’s letter points out.

            “ American Samoa pledges its allegiance to the United States ,” Faleomavaega continued. “ Ecuador does not.”

            As viewed from Pago Pago , it makes perfect sense for Congress to jigger tariffs aimed at diverting tuna trade flows around the world, the point of the exercise being to protect the jobs of the 5,000 tuna workers in American Samoa .

TOP