US embassy cable - 05HOCHIMINHCITY622

UNCLAS  HO CHI MINH CITY 000622 
 
SIPDIS 
 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS USTR, ELENA BRYAN 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT 
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
BANGKOK ALSO FOR CUSTOMS 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIS, EAGR, ECON, PREL, VM 
SUBJECT: U.S. CUSTOMS BONDS HIT SHRIMP INDUSTRY HARD 
 
REF:  HCMC 528 
 
1. (SBU) SUMMARY: According to Vietnamese shrimp exporters, a new 
bond requirement issued by U.S. Customs may effectively close the 
U.S. market to Vietnamese shrimp.  These recently-implemented bond 
regulations require U.S. importers to pay as much as USD 20 
million in bonds, up from USD 50,000, in order to import 
Vietnamese shrimp subject to anti-dumping duties into the United 
States.  ConGen contacts say they view the bond regulations as a 
non-tariff barrier.  They raised the issue during the May 6 visit 
of the Deputy Secretary to Ho Chi Minh City and may plan to raise 
it again in the context of Prime Minister Phan Van Khai's U.S. 
visit.  END SUMMARY. 
 
2. (SBU) In the wake of the U.S. dumping case against Vietnam and 
other shrimp-exporting countries, Vietnam's shrimp producers and 
exporters breathed a sigh of relief, as the final 4.13 to 25.76 
percent anti-dumping duties on Vietnam were lower than originally 
anticipated.  However, local exporters believe that recently 
implemented changes to U.S. Customs bond requirements may 
effectively close Vietnamese shrimp exporters out of the U.S. 
market for the foreseeable future.  According to industry 
representatives, these new requirements are outlined in an 
"Amendment to Bond Directive 99-3510-004 for Certain Merchandise 
Subject to Antidumping/Countervailing Duty Cases," which was 
posted on the U.S. Customs website in July 2004.  In the 
amendment, Customs reports that changes to bond requirements for 
agriculture and aquaculture products subject to anti-dumping 
duties are necessary to comply with the Continued Dumping and 
Subsidy Offset Act (also known as the Byrd Amendment). 
 
3. (SBU) Mr. Nguyen Van Kich, Vice-Chairman of the Vietnam 
Association of Seafood Exporters and Producers (VASEP) and General 
Director of seafood processing company Cafatex, described the bond 
procedure and the new rule's adverse effect on Vietnam's shrimp 
industry to EconOff.  (NOTE: VASEP represents companies who 
produce 70 percent of Vietnam's seafood.  Kich chairs VASEP's 
Shrimp Committee, which organized Vietnam's response to the anti- 
dumping lawsuit.  END NOTE.) According to Kich, in the past, U.S. 
shrimp importers paid bonds of around USD 50,000 to bond insurance 
companies as a payment guarantee for U.S. Customs duties and fees. 
The July 2004 Amendment, which Kich said took effect in March, now 
requires importers to use the previous year's total imports from a 
Vietnamese company as the basis for estimating anti-dumping duties 
for that company and calculating the bond on each future shipment. 
For example, if a Vietnamese company exported USD 100 million in 
shrimp to the United States in 2004 and that company received an 
anti-dumping duty of 5 percent, then a U.S. importer would be 
responsible for paying a USD 5 million bond in advance in order to 
import any shrimp at all from that company.  If that company was 
instead subject to a 25 percent anti-dumping duty, then the bond 
requirement would jump to USD 20 million. 
 
4. (SBU) Not only have the bond requirements jumped dramatically, 
but bond insurance companies - through which importers are obliged 
to submit their bonds - have raised their fees.  Kich noted that 
in the past, though bonds tended to be a flat fee of USD 50,000, 
the insurance companies allowed importers to pay a small fraction 
of that amount up front to get shipments into the country.  Now 
that the rules have changed, the bond insurance companies are 
demanding the entire bond be paid up front - plus a fee of 20-30 
percent for the insurance company - before they will allow the 
shrimp to be brought into the United States. 
 
5. (SBU) The result, said Kich, is that Vietnamese shrimp exports 
to the United States have slowed dramatically.  In the first two 
months of 2005, shrimp exports to the United States dropped by 40 
percent compared to the same period last year.  According to Kich, 
Vietnam exported USD 500 million in shrimp to the United States in 
2003, USD 400 million in 2004 and is projected to export only USD 
200 million in 2005.  U.S. importers have told Kich they will now 
buy shrimp from countries not subject to the anti-dumping lawsuit, 
rather than face such onerous fees.  (NOTE:  According to our 
calculations based on USITC data, Vietnamese exports of shrimp in 
the categories covered by the anti-dumping case have fallen about 
 
20 percent in the first quarter of 2005 as compared to the same 
period in 2004.  END NOTE.) 
 
6. (SBU) These developments have also affected shrimp prices in 
Vietnam.  Kich reported that shrimp prices have dropped by 30-40 
percent since the beginning of 2005.  At the initiation of the 
anti-dumping lawsuit in 2003, shrimp averaged VND 160,000 per kilo 
(about USD 10/kilo at current exchange rates).  In 2004, shrimp 
averaged VND 100,000 (about USD 6.30/kilo).  Now shrimp prices 
hover around VND 60,000/kilo (about USD 3.80/kilo). 
 
7. (SBU) Kich forecasted a crisis in Vietnam's shrimp industry, 
which he said employs around 2 million people, if the situation 
remains unchanged.  While many shrimp exporters are developing 
markets in other countries, this will not completely make up for 
lost U.S. business.  Already Mekong Delta newspapers are reporting 
farm closures.  In the city of Can Tho, 20 of 90 farmers in one 
district have gone out of business.  In Ca Mau province, shrimp 
farms are reportedly operating at 60 percent capacity. 
 
8. (SBU) Kich called the new bond requirements a non-tariff 
barrier (NTB) that is worse than a regular tariff.  At least with 
a tariff, Kich said, companies can still try to compete on price. 
The bond requirements, on the other hand, close the U.S. market 
completely since importers do not want to bear the Customs fees. 
Kich also observed that the bond policy creates an incentive for 
some exporters in Vietnam and the other countries subject to the 
lawsuit to resort to transshipment to get their product into the 
United States via countries not subject to anti-dumping duties. 
 
9. (SBU) COMMENT:  This new bond issue and its effect on Vietnam's 
shrimp industry was raised during a business roundtable held with 
the Deputy Secretary May 6. (reftel)  Kich said he and other 
exporters will urge the GVN to take up the matter with the USG. 
Given the importance of the industry to Vietnam in terms of export 
revenues and employment, it is possible this issue may be raised 
during Prime Minister Phan Van Khai's June 21 visit to Washington. 
 
WINNICK 
 
 
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