July, 2003: Cover Story

By Greg Rushford

Published in the Rushford Report

It doesn’t take a PhD in economics to understand why globalization will always be controversial. Just consider the humble mudbug, and the story of trade litigation that also appears somewhat modest, at least in its relatively small dollar terms. But In the Matter of Crawfish Tail Meat from China deserves close scrutiny in broader international trade circles because of its larger lessons. This is a story about change — and the fear of change — that is at the heart of the controversy over globalization.      

            On July 15, the U.S. International Trade Commission is expected to determine that antidumping tariffs ranging from 91-201 percent that were imposed in 1997 upon imports of frozen Chinese crawfish tail meat should be continued for another five years. The case is being pressed by the Crawfish Processors Alliance, which is comprised of 30-plus struggling Louisiana crawfish processors and their roughly 900 seasonal $4.98-per-hour peelers. “We believe with every particle of our being that our domestic industry, the crawfish processing industry, is gravely, not just materially, injured,” veteran Washington trade lawyer Will Leonard told the ITC last month. “Without the antidumping order that injury will continue until we soon perish.”

            Having watched this case from the beginning, I’m even gloomier than Leonard. In my view, his clients — Cajuns who admirably personify a colorful part of Americana — will most likely perish, antidumping tariffs or not. We are talking about an industry that has tried to hide behind high tariff barriers for the past five years, and still is in deep economic gumbo. The members of the Crawfish Processors Alliance have not turned a profit in any of the five years since they “won” their case — unless you count $7.5 million in so-called Byrd Amendment revenues that were turned over to the petitioners by U.S. Customs last year. Considering what the Cajun culture that thrives along the Bayou means to America , nobody can be happy that these proud people have been reduced to welfare dependencies.        

            [The 1,100 Louisiana crawfish farmers who harvest mudbugs in their rice paddies, and another 1,000 fishermen who catch crawfish in the wild, are hopping mad that they haven’t been able to get in on the Byrd raid on the U.S. Treasury. But farmers and fishermen aren’t in the case, and their interests don’t count. Nor does the antidumping statute watch out for the legitimate interests of American consumers outside of Louisiana who are being asked to subsidize a handful of Louisiana crawfish companies by paying higher prices for their frozen Chinese tail meat.]

            But the Cajun crawfish petitioners — like other, more innovative entrepreneurs in Louisiana have already begun to do — don’t have to perish. If they could get over their fear of change, their xenophobia, their fear of doing what it would take to thrive in the global marketplace, the U.S. crawfish industry could prosper. Last month, John Steinberger, another lawyer for the Louisiana crawfish processors, told the ITC that the crawfish his clients love to turn into bisques and gumbos are an ancient species of crustacean that hasn’t changed in 200 million years. Certainly, Steinberger said, “There have been no significant advancement in crawfish anatomy since 1997.” As the lawyer spoke, I thought of his clients’ crusty economic thinking that also has not changed in recent memory.

Good times, bad times

Five years ago, it looked like good times were back in the Bayou, as U.S. antidumping authorities hit imports of low-priced frozen Chinese crawfish tail meat with the tariffs up to 201 percent. “This was “a huge victory” against the foreigners, said Louisiana Agriculture and Forestry Commissioner Bob Odom. I remember that the day after the ITC ruled in August, 1997, prices for a pound bag of Chinese crawdads shot up in my Fresh Fields supermarket in the Washington , D.C. suburbs from $7.99 to $9.99. And for the next two years, U.S. prices nationally rose by some $2-per-pound. For the Cajuns, it looked like a case of Laissez les bons temps rouler.

            Five years later, however, nobody’s cheering in Louisiana crawfish circles. The price for a bag of Chinese crawfish tail meat at my local Fresh Fields is back to $7.99. I have never seen Louisiana crawfish tail meat on that shelf. Nationally, crawfish tail meat prices are also now at 1997 levels.

            Americans have never tucked into so many bisques made of Chinese mudbugs. In the three years before the antidumping tariffs were imposed in 1997, U.S. imports of Chinese crawfish tail meat were $63 million — compared to nearly $79 million in the last three years. As measured in quantity terms, the picture is even worse from the Louisiana perspective. In 1997, the U.S. imported 2.3 million pounds of Chinese crawfish tail meat; in 2002, those imports had risen nearly fourfold, to 8.8 million pounds. Advocates for the domestic industry calculate that their clients were losing about 15 cents on every pound of tail meat back in 1997; by last year, taking away the Byrd revenues, the losses had shot up to $1.35-per-pound. In 1997, domestic crawfish processors held about 13 percent of the domestic market, about exactly the same as today.

            Even though the antidumping duties have barely kept their industry on economic life support, the domestic processors — still crawfishing for those Byrd Amendment tax dollars — naturally want the tariffs extended. “We cannot afford to have that weapon taken away from us,” Agriculture Commissioner Bob Odom testified before the ITC on June 3.

Chinese cheats

Why hasn’t the antidumping weapon worked better?

            Part of the answer is that tariff walls tend to be porous. When there is money to be made, businesses will find loopholes to get around trade barriers, legal or not. Lawyers for the Louisiana crawfish petitioners have evidence that unscrupulous Chinese crawfish interests have set up dummy companies to avoid perhaps as much as $20 million in duties — disappearing when Customs officials come to collect. “The real competition is between those who are cheating and those who are not,” says lawyer John Steinberger.

            Steinberger told the ITC last month that in the original antidumping investigation, Chinese crawfish tail meat was underselling the domestic market by margins from 37.5- to 56.7 percent. “Since then the margins of underselling have been in the range of 19.8 percent to 67.9 percent,” he asserted. Because it seemed odd that such a thing could happen with 201 percent tariffs, Steinberger started checking.

            To simplify the scam that Steinberger’s investigation uncovered, basically the Chinese set up “new” companies that have never been found to have “dumped” product in the United States crawfish market. New shippers don’t have to fork over cash antidumping duty deposits to cover the cost of the high tariffs. As new shippers, their tariffs are zero; they only have to post bonds. The math is simple: Turning tail and walking out on a $50,000 bond makes sense — if your company has shipped millions of dollars of frozen crawfish tail meat. At last month’s ITC hearing, Steinberger told commissioners of one Flushing, New York-based “new shipper” that turned out to have the same address — and same Mercedes parked in the driveway — as the owner of a supposedly unaffiliated  “old shipper.”

            Not that it excuses evading the law, of course, but from the Chinese viewpoint the U.S. antidumping regime is unfair and undeserving of respect in the first place. Because the Commerce Department considers China to be a non-market economy, the bureaucrats were only able to find that Chinese crawfish exporters were “dumping” by cooking the books. To determine the Chinese costs of production, for instance, Commerce picked India as a surrogate free-market country, unimpressed with the fact that India doesn’t have a crawfish industry. To calculate the value of Chinese labor, the bureaucrats in Washington looked up India in a United Nations Yearbook of Labor Statistics. To determine the value of China ’s inland freight costs, Commerce checked out an article from the Times of India, pretending that this made economic sense. Such tricks explain how the Chinese crawfish industry came to be termed officially “unfair” by the U.S. government.

            Protectionist antidumping machinations aside, what’s really going on is competition — and China ’s clear comparative advantage. “The price for Chinese crawfish has stayed around three bucks a pound,” Chef Frank Beaulieu Randol told the ITC at last month’s hearing. “The cost of my labor alone cost me a buck 59 to process.”

1-800-YO-CAJUN

Chef Randol owns Randol’s Seafood and Restaurant in LaFayette , Louisiana . This is in the heart of Cajun country. And the chef is about as proudly Cajun as one gets. You can reach him at 1-800-YO-CAJUN. Randol’s favorite seafood, he once told a radio interviewer, is “all fresh Louisiana seafood — but I’m partial to crawfish.“ His best party, Randol proclaimed, is “the next one.”

            Randol’s serves all-American Cajun seafood from the Bayou or parts nearby: Fried Oysters, Catfish de Maison, Crabmeat Florentine, Stuffed Soft Shell Crab, and a Seafood Platter made of gumbo, fried catfish, shrimp, oyster, deviled crab, and crawfish etouffee. He’s also got Louisiana alligator that goes into a Mixed Sausage Grill, along with crawfish and duck.

            Randol appeared before the ITC on June 3 wearing his white chef’s uniform. At lunchtime, he served the commissioners some delicious-looking peeled Louisiana crawfish in a Tasso cream sauce with a rotini pasta. “Good food, good music, and good times roll in Louisiana ,” the celebrity chef declared.

            But while they love to party, Cajuns don’t much take to foreigners. Former presidential candidate Pat Buchanan, knowing his audience, once called the Chinese imports “Communist Crawfish.”

            When China started to compete in U.S. national crawfish markets, at first nobody worried too much, Agriculture Commissioner Odom told the ITC. “Then they began to come into our state, our towns, our own hometowns, and began to price-wise capture the marketplace because there were certain stores and certain places that sell based on price, and that’s how they’ve been able to move into the marketplace.” Along the Bayou, market economics can be a foreign conspiracy.

Why Louisiana can’t compete

There will always be a market in Louisiana for fresh, whole boiled-and-seasoned crawfish, which is perhaps 80-90 percent of the market. But a few simple numbers explain why the Cajuns are in trouble in the remaining sales of frozen tail meat. Ninety-seven percent of frozen Louisiana crawfish tail meat is sold in Louisiana . Another 2.3 percent is sold to neighboring Texas and Arkansas . That leaves .07 percent to supply demand in the rest of the nation. China can do that. Louisiana can’t.

            Louisiana crawfish processors — now operating at about 30 percent capacity — can’t even supply even one national retailer like Wal-Mart. They can’t supply even one major restaurant chain like Darden Restaurants, which operates more than 1,200 restaurants in the United States , including Red Lobster and Olive Garden. Even if Louisiana somehow wiped China out of U.S. national markets and began to operate at full capacity, there simply wouldn’t be enough mudbugs in the Bayou to feed a hungry nation.

            “Today, we alone consume over a million pounds annually, many times what the domestic industry produces on a frozen basis,” Mike Powers, the director of seafood procurement at Darden Restaurants, explained at last month’s ITC hearing. “We would buy from domestic suppliers if we could, but we cannot because supply in the quantities we need are simply not available from domestic suppliers.”  

            “Our company alone purchases and distributes crawfish into the millions of pounds annually,” says Matthew Fass, vice-president of the Newport News, Va.-based Maritime Products International. “This is considerably more than the domestic industry has ever produced.”

Bringing Cajun delights to America

While the petitioning domestic crawfish processors and their champion in government, Louisiana Agriculture Commissioner Bob Odom, are resisting import competition, other entrepreneurs and smart marketers have begun to adjust to the realities of the global marketplace. The trick is to take advantage of China ’s comparative advantage, by adding value to the affordable imports. My local Fresh Fields, for example, makes Cajun-style crawfish salad from Chinese tail meat — a heresy to many in Cajun country.

            The model for the Louisiana crawfish industry was set in the domestic crab markets in the 1990s by restaurateur Steve Phillips, who realized that he couldn’t obtain enough crabs from the Chesapeake Bay to supply the Washington-Baltimore area. So Phillips headed for the Philippines , put down his crab pots, and taught the locals how to become crab entrepreneurs. Today, Phillips Foods’ employees in Baltimore make Maryland-style crab cakes for the nation — thanks to Asian crab meat. Unlike the members of the Crawfish Processors Alliance who are fighting globalization, Phillips is stronger both personally and financially because he summoned the courage to change.

            King & Prince Seafood Corp., of Brunswick , Georgia , for example, employs approximately 500 people who sell frozen, breaded crawfish in U.S. national markets. “We now sell this unique product to over 100 customers located throughout the United States, and less than 10 percent of our sales are in Louisiana,” Paul Obirek, the company’s director of seafood procurement, told the ITC at the June 3 hearing. “Demand for frozen, breaded crawfish continues to grow, and this is evidenced by the fact that our sales on our product, from 2001 to 2002, increased by over 90 percent.” 

            Seafood distributors like King & Prince need consistent year-round supply, which they can get from China , but can’t obtain from the domestic crawfish processing industry. “We have not been contacted by any domestic producers seeking our business,” Obirek emphasized to the commissioners. 

            King & Prince’s success story is hardly an isolated example. From New Orleans , Kajun Kettle sells crawfish etouffees made out of Chinese tail meat all over the United States . So does A La Carte Foods, and also Chef John Folse & Co. So does French Market Foods, which is based in nearby Lake Charles . “We are an aggressive manufacturing firm, which has a mission to provide unique cultural delicacies in markets throughout the country,” boasts the company’s website.

            Last month, I sent Chef Frank Randol in Layfayette an e-mail asking why he, too, couldn’t use imported crawfish tail meat to bring the delights of Cajun-style cooking to the rest of America . He didn’t respond.

Jimmy Johnson: turning failure into success

Perhaps the most impressive witness at last month’s ITC hearing was Jimmy Johnson, a seafood entrepreneur from North Carolina . “I sit here today with strong emotions,” Johnson told the commissioners.

            Four years ago, Johnson was struggling to survive by selling only domestic crabs. Johnson played a leading role in a coalition of domestic crab processors that hired Will Leonard to seek import relief pursuant to Section 201 of U.S. trade law. The effort was unsuccessful.

            But in the ITC hearing room on June 3, Johnson sat on the other side of the table from Leonard, his former lawyer. 

            For Johnson, the lessons of global economic realities came hard. He was forced to sell his crab business in October 2000. He nearly lost his home. But he didn’t. Jimmy Johnson has turned into a success story. These days he works in Bellhaven , NC , for an aggressive seafood marketer named Sea Safari, adding value to domestic crab products. “I have been able to adjust and continue to adjust, and my involvement with this dynamic seafood industry continues even today,” he testified. 

            Johnson also deals in Chinese crawfish tail meat, selling products like “Cajun Popcorn” (breaded crawfish tail meat) in U.S. national markets. “I was at the National Restaurant Association show the week before last,” he told the ITC. “We were showing a couple of these products, and it was amazing how many people came up and tried crawfish because they had never tried it before.” 

            Johnson spoke with the confidence of a man who has learned his economic theory the hard way: “The seafood industry, in general, and the crawfish industry, in particular, are not static. As our world becomes more globally focused, I, myself, have had to adjust the way that I think, and I’ve had to look globally and have had to develop new products to survive in this ever-changing market environment. It would truly be unfortunate for a hard-working and innovative company like Sea Safari to have its future clouded over by the continuation of an antidumping order protecting production of a product that cannot even remotely meet the demand of U.S. consumers.”

            For the members of the Crawfish Processors Alliance as they seek continued high tariff barriers against China , the lesson still to be learned is: Protectionism never really works in the long run. Change is hard, even wrenching — but it is inevitable, and ultimately better.

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