U.S. Dumping Law: A Sticky Situation

Richard Adee, a South Dakota beekeeper, credits an obscure U.S. trade law with keeping him alive in the cutthroat world of honey, where prices are slashed and supplies are allegedly dumped in search of sweet profit.

“The law saved the honey industry,” Adee, a second-generation honey producer, said. “We’ve had a lot of our beekeepers go out of business.”

For Hans Boedeker, a Tustin, Calif., honey importer, that same law spells doom: “These laws are very arbitrary. There was no dumping of honey.”

These businessmen find themselves on opposite sides of an emotional debate over a U.S. law designed to protect American firms from imports being sold below the cost of production, a process called dumping. At the recent World Trade Organization meeting in Qatar, the U.S. government reluctantly agreed to reconsider dumping laws to get a new round of global trade talks launched.

The U.S. has been the most fervent user of trade laws designed to protect industries such as steel, textiles and specialty farm products from low-cost foreign competition. Unhappy foreign governments call the U.S. laws thinly disguised protectionism, and the World Bank recently accused the U.S. of aggravating poverty by using the dumping laws to keep out products from the world’s least-developed countries.

The potential loss of protection has elicited outrage from threatened domestic industries, whose powerful supporters in Congress are now threatening to derail the Bush administration’s hopes for passage of a bill that would give the president authority to negotiate trade agreements that Congress must vote on without amendments.

“Everyone wants into our market because it’s the most stable, lucrative and open,” said Michael Coursey, a Washington attorney representing U.S. beekeepers and garlic producers in dumping complaints. “From a domestic industry viewpoint, the U.S. is engaging in unilateral disarmament.”

Last month, the U.S. International Trade Commission ruled that low-cost honey was threatening the country’s 2,759 beekeepers and imposed duties as high as 184% on imports from Argentina and China.

Although that decision was praised by U.S. honey producers, who have seen prices increase by nearly 50% since the ITC released its initial dumping ruling last spring, it has effectively wiped out the leading sources of imported honey and raised costs for food products firms and packing companies. The effects are keenly felt in California, a leading honey state, which produced 30.8 million pounds last year.

At the WTO meeting, U.S. agricultural exporters joined foreigners in pushing for changes in the dumping laws because they have increasingly found themselves the targets of complaints abroad. Importers and consumers also are unhappy because the punitive duties raise their costs by pushing cheaper imports out of the U.S. market. Nearly half of the U.S. dumping cases involved steel.

U.S. Trade Laws Successfully Challenged

“Consumers pay the bill when the duties are imposed and they have a direct stake in the outcome,” said Lewis Leibowitz, a Washington attorney representing the Consuming Industries Trade Action Coalition, which represents steel importers, retailers and other firms in favor of dumping reform. “Their interests should be represented in these cases.”

Leibowitz said the U.S. trade remedy laws--which include dumping protections and other safeguards against import surges--are politically driven and incompatible with U.S. treaty obligations. The U.S. has been on the losing end of several recent challenges in the WTO involving South Korean and Japanese steel, European lead and Australian and New Zealand lamb.

But Jeff Schott, a WTO expert at the Institute for International Economics in Washington, said those successful challenges of U.S. trade laws involved narrow technical issues that could be modified to comply with the WTO without wholesale reforms.

Schott warns, however, that without substantial changes to the global trade remedy system there will be an increase in dumping complaints, particularly by developing countries looking for new ways to protect domestic industries from stepped-up competition.

This issue has split the U.S. agriculture community, which is highly dependent on exports but also faces fierce import competition at home. Following in the footsteps of the U.S., dozens of other countries have drawn up dumping laws in recent years and have used them against American exporters, particularly in agriculture where the U.S. is a highly efficient, low-cost producer.

Since July 2000, U.S. poultry producers have faced duties of 300% for allegedly dumping chicken legs on the South African market, a penalty that priced them out of the market. Bill Roenigk, senior vice president of the National Chicken Council, said it is common to sell chicken parts at different prices depending on demand, a practice acceptable under the WTO. If the cost of production is 50 cents per pound, he explained, the producers charge $1 a pound for chicken breasts and 25 cents a pound for the hindquarters.

Canada, Mexico File Most Dumping Cases

Roenigk, whose members pushed dumping reform, said U.S. poultry giant Tyson Foods and other producers spent more than $500,000 fighting the dumping complaint and have asked the U.S. government to take their dispute to the WTO. Although South Africa is a relatively small market, U.S. producers fear the Scase will encourage other countries to take similar actions.

“If this is allowed to stand, South Africa or some other country could say, ‘This beef liver or this beef tongue is being sold below the cost of producing the whole carcass,”’ he said.

In a twist, the biggest filers of agriculture dumping cases against U.S. firms are Canada and Mexico, which under pressure from the United States reluctantly agreed to keep dumping laws in the free trade zone linking their economies to the United States. China, the leading target of U.S. dumping complaints, faces stiff penalties in the U.S. on such items as honey, mushrooms, paper clips, porcelain cookware and brake rotors.

Low-Wage Countries Have an Advantage

Spencer Griffith, a Washington attorney who represents Chinese honey exporters, said China is treated like a “non-market economy” under U.S. trade law, which makes it much more vulnerable to dumping charges. Under the surrogate country test used for China, the U.S. establishes the cost of production by studying the prices in a similar country, usually India.

But Griffith said India’s costs for things such as labor are more expensive, increasing the likelihood the Chinese will be found guilty of under-pricing. The Chinese don’t know in advance which country will be used to measure their costs, making it difficult for them to set their prices.

“It’s a very arbitrary process which often produces arbitrary results,” he said.

But Adee, whose sons, Bret and Kelvin, have joined him in the business, said honey producers in China and Argentina, the other target of the latest dumping complaint, benefit from low wages and government subsidies that allow them to sell their excess on the world market at prices far below the U.S. From 1993 to 2000, the number of beekeepers in the U.S. declined by 28%, according to Adee, president of the American Honey Producers Assn.

Low-wage countries have a huge advantage in honey making because labor accounts for 40% of production costs. Adee sells honey and rents his colonies to almond growers, who use the bees to pollinate their groves, which is supposed to improve the quality and increase production. He recently shipped 50,000 bee colonies from the Midwest to Central California, where they will be pollinating almond blossoms from January through March. After that, a quarter of the bees will be sent on to a bee breeding operation in Mississippi; then they are all moved back to the upper Midwest for honey production.

Although the dumping complaint has raised the average cost of honey to 75 cents a pound, it is still at least a penny a pound below his break-even point, Adee said.

“In the short term, pollination is going to have to subsidize honey production,” he said.

This is the second go-round for China, which agreed in 1996 to restrict its exports to the U.S. after being threatened with a honey dumping complaint. The headaches continued, however, because China shifted its focus to Europe, where it displaced honey imports from Argentina. Saddled with a glut of honey, the financially strapped Latin American country shifted exports to the U.S., pushing down prices by 20 cents a pound. That led to the filing of a second dumping suit against China and Argentina in September 2000.

“For our industry, it’s not a matter of philosophy, its a matter of survival,” said Troy Fore, executive director of the American Beekeeping Federation in Jessup, Ga.

Boedeker, president of the Impex Group, a California food products trading company, predicted the dumping suit will be only a short-term solution because the displaced Chinese and Argentine honey will go to other markets and displace exporters who are likely to end up back in the U.S. market.

“What these anti-dumping suits do is temporarily create a shortage and then, just like damming the flow of a river, it will find new ways to come back to the U.S.,” he said.

His greatest worry is that the honey war will cause the food processing industry--which purchases 55% of the honey--to reformulate recipes to incorporate less expensive, and more price-stable, sweeteners. “That business could go away completely,” he said.