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Effects of Antidumping Duties with Bertrand Competition:

Some Evidence for Frozen Catfish Fillets

Nguyen Minh Duc and Henry W. Kinnucan

Department of Agricultural Economics and Rural Sociology

Auburn University, AL 36830
Email: [email protected], [email protected]

Selected Paper prepared for presentation at the American Agricultural Economics

Association Annual Meeting, Portland, OR, July 29-August 1, 2007

Copyright 2007 by Nguyen Minh Duc and Henry W. Kinnucan. All rights reserved. Readers
may take verbatim copies of this document for non-commercial purposes by any means,
provided that this copyright appears on all such copies.

1
Effects of Antidumping Duties with Bertrand Competition:

Some Evidence for Frozen Catfish Fillets

Abstract

Antidumping duties are popular in the United States because under the Byrd

Amendment domestic industry gets to keep tariff revenues. However, whether antidumping

duties are an effective instrument of protection depends crucially on the tariff’s ability to

increase demand for the home good. Under Bertrand competition, the Byrd Amendment

enhances tariff effects on the home price and trade flows in comparison to perfect

competition. Assuming Bertrand competition and differentiated products, price-reaction

functions of frozen catfish fillets are derived and estimated jointly with a demand equation

using monthly data for the period January 1999 - December 2005. An inverse demand

equation for farm-level products is also added to explore the efficacy of the tariff on price of

farmed catfish. The estimated increase associated with the duty is exhibited tiny in price and

sales of domestic fillets but insignificant in farm price. The result suggests antidumping

duties are a weak tool for protecting the domestic catfish industry.

Keyword: antidumping tariff, Bertrand competition, Byrd Amendment, catfish, price.

2
Through various GATT/WTO rounds, tariff barriers have decreased worldwide, but

antidumping measure has surged to play a crucial role as the most important non-tariff

barrier (Zanardi, 2004). Antidumping duty is recently used more frequently, by more

countries, and against more products (Prusa, 2005). As processed and differentiated

agricultural products are increasingly traded cross national borders (Reimer and Stiegert,

2006) more of them are facing antidumping measures taken by importing countries

(Kinnucan and Myrland, 2005, Bown, 2006).

Since the 1980s, the rise in international competition has led many U.S. firms to seek

protection from foreign imports (Hansen and Prusa, 1996). One of the protection tools is the

Continued Dumping and Subsidy Offset Act of 2000, commonly referred to as the Byrd

Amendment. The Byrd Amendment permits successful petitioners for anti-dumping and

countervailing duties to collect tariff revenues. It also increases the incentive for the

domestic firm to increase its price because by doing so it increases the sales of the foreign

firm, which increases the domestic firm’s revenue from the tariff.

As a consequence, the Byrd Amendment has the paradoxical effect of increasing the

value and total volume of imports (Evenett, 2006) compared to the equilibrium without the

Byrd Amendment and undermines the original intent of the duty. Related research suggests

antidumping duties in a competition tend to be ineffective in that an importing country’s

demand for a product from a particular supply source tends to be highly elastic in relation to

supply from that source, which means most of the duty is borne by the foreign supplier rather

than the importing-country consumer (Kinnucan, 2003).

The purpose of this research is to test the hypotheses advanced by Kinnucan (2003)

and Evenett (2006) by measuring the effects of recent anti-dumping duties imposed by the

3
United States on frozen catfish fillet imports from Vietnam. Assuming Bertrand competition

and differentiated products, price-reaction functions are derived and estimated jointly with a

demand equation using monthly data for the period January 1999 - December 2005. A farm-

level inverse demand is then added to quantify the effects of the duties on farm price, the

industry’s main motivation for filing the petition in the first place.

Catfish production is one of the biggest aquaculture industries in the United State and

frozen catfish fillets are an important product of the US catfish processing industry (Harvey,

2005). The catfish “trade war” represents a useful case study in that the anti-dumping duties

are large (ranging from 45% to 64% of the import price), affected virtually all of the

companies in Vietnam that export to the United States, and were implemented in 2003, two

years after the Byrd Amendment went into force.

Literature Review

Imperfect Competition in Agricultural International Trade

While there are a few studies examining imperfect competition of international markets for

non-agricultural products and services (Reimer and Stiegert, 2006), a large number of the

competitive behaviors in specific agricultural products have been documented.

Rice is the most popularly traded agricultural products. With a dynamic New

Empirical Industrial Organization approach to examine structure of international rice export

market, Karp and Perloff (1989) confirm that the market is oligopolistic with Thailand,

Pakistan and China are modeled as oligopolists and all other countries as a competitive

fringe. Competitive behaviors between US and Thailand exporter in the market are also

imperfect (Yumkella, Unnevehr and Garcia, 1994).

4
Glauben and Loy (2003) find that there are exercises of market power by German

export of beer to North America, in exports of sugar confectionery to the UK and in exports

of cocoa powder to Italy. The market powers might be explained by fixed contracts, which

are often used in the food and beverage export market. Using a census of some 500 firms for

the period 1990–2002, Wilhelmsson (2006) also suggests that firms in the Swedish food and

beverage industry do enjoy some varied degrees of market power and increased foreign

competition has contributed to reducing market power in sectors that were protected by tariff

and non-tariff barriers to trade prior to Swedish EU membership.

The imperfect competitive behaviors are also found in international markets of other

commodities. Brazil and Columbia are oligopolistics in coffee export market (Karp and

Perloff, 1993). Philippines takes substantial market power in the coconut oil exports market

(Buschena and Perloff, 1991) whereas German banana import market follows Cournot-Nash

equilibrium (Deodhar and Sheldon, 1996). In international wheat market, there are exist

evidence for price discrimination and market power by US wheat exporters (Pick and Park,

1991, Patterson and Abbott, 1994). Empirical study of Carter and MacLaren (1997)

indicates that sale data of US and Australian beef exporters fits the Stackerberg model with

price leadership by Australians. Statistical evidence also confirms that the global malting

barley market operates as a Cournot quantity setting oligopoly (Dong et al., 2006).

Antidumping Measurement – Definition and Investigation Process

Under the GATT/WTO regulations, foreign suppliers named in antidumping suits must met

two criteria for duties to be imposed (Knetter and Prusa, 2000). First, there must be evidence

that the domestic industry has materially injured (e.g., a loss or decline in profitability) by

foreign imports. Second, the foreign suppliers must be found to be selling their products at

5
“less than fair value” prices. A dumping case occurs when subject products are sold at a

price “less than fair value”. According to Knetter and Prusa (2000), “less than fair value” is

determined: (1) by showing that the price charged in the domestic market by the foreign

suppliers is below the price charged for the same product in other markets (i.e., the “price-

based” method) or (2) by showing that the price charged in the domestic market is below an

estimate of cost plus a normal return (i.e., the “constructed-value” method).

In the United States, the Department of Commerce (DOC) and the International Trade

Commission (ITC) administrate the antidumping laws. Each has distinct roles in the

antidumping investigation process. For response to petition filed by domestic firms, the

DOC calculates whether foreign firms are selling the product to the US at less than “normal”

or “fair” value, i.e. whether dumping has occurred. The department then calculates an ad

valorem dumping margin equal to the percentage difference between the US transaction

prices they observe and fair value. The ITC, in its turn, has to determine whether the

domestic industry has been materially injured, or is threatened with material injury caused by

accused imported products. Both agencies make preliminary and final determinations during

the investigation. According to Blonigen and Heynes (2002) if they both give affirmative

preliminary determination, the importer must post a cash deposit, a bond or other security

equal to the preliminary margin determined by DOC for each entry of the subject product.

This requirement stays in effect until either the DOC and ITC makes a negative final

determination. If both agencies give an affirmative final determination, an order is issued by

DOC to levy an antidumping duty equal to the estimated dumping margin on the subject

product. In a timeline, Blonigen and Heynes (2002) summarize the investigation process and

6
suggest that it would be taking up to 280 days from the petition filed to the ITC final

determination.

The Byrd Amendment and Its Impacts

The "Byrd Amendment", named after its sponsor Democratic Senator Robert Byrd and

passed by US Congress in 2000, permits plaintiffs to collect revenues from the antidumping

and/or countervailing duty. The disbursement is available only to "affected domestic

producers for qualifying expenditures." An "affected domestic producer" is defined as a

manufacturer, producer, farmer, rancher, or worker representative (including associations of

such persons) that (1) was a petitioner or interested party in support of a petition with respect

to which an antidumping or countervailing duty order was in effect and (2) remains in

operation. Producers that have ceased production of the product covered by the order or that

have been acquired by a firm that opposed the petition would not be considered an affected

domestic producer (ITC, 2006)

The Byrd Amendment has been found in violation of WTO trade remedy rules (Jung

and Lee, 2003) and imposes distortions on the U.S. economy. The Congressional Budget

Office (2004) estimates that $3.85 billion in revenues collected will be distributed to firms

between 2005 and 2014. Between 2001 and 2004, $1 billion was paid to 770 firms that were

allegedly harmed by unfair trade practices (GAO, 2005) but more than one-third going to a

single corporation, the Timken Company, and two of its subsidiaries (CITAC, 2006). More

than half of the $226 million of Byrd Amendment payouts in 2005 went to five companies,

and 80% percent of the payouts went to only 34 companies (CITAC 2006) and two thirds of

the disbursement flow to only 3 of the 77 eligible industries (GAO, 2005). Three industries

benefited the most from the Byrd payments are ball bearings, candles, and steel (CITAC

7
2006). The amounts distributed to individual corporations can distort the competitive

structure of an industry, leading to a reduction in competition.

The Byrd Amendment not only harms the U.S. economy but also hurts US exporters.

Under complaints filed by 11 trading partners including European, Canada and Mexico, the

World Trade Organization (WTO) ruled in January 2003 that the Byrd Amendment was in

violation of U.S. trade obligations and complaining countries have been awarded the right to

impose retaliatory duties on U.S. exports, up to $134 million in 2005 (Odessey 2006). Thus,

the longer Byrd payments still offered to US domestic industries, the more US’s trade

partners can retaliate against U.S. goods, and the more U.S. consumers suffer. Besides

various literatures on effects of antidumping measurement, for instance, Blonigen and Prusa

(2001), Blonigen and Heynes (2002), Kinnucan (2003), Zanardi (2004), Hansen and Prusa

(1996), Prusa (2005), Feenstra (2004), Kinnucan and Myrland (2005), there also exist studies

on impacts of the Byrd Amendment.

Jung and Lee (2003) suggest that the Byrd Amendment provides an incentive for

domestic industries to file antidumping legislations, distort competition between the firms

who are beneficiaries and those who did not have enough resource or information to support

the petitions. The amendment disappoints the legitimate expectation from exporting

countries and infringe on the rights of the other countries to open and transparent trade. It

hurts downstream industries, consumers and global welfare also. Empirical results of Olson

(2005) provide strong evidence that more US domestic industries have lobbied for more tariff

protection, or filed more antidumping petitions since passage of the Byrd Amendment.

Modeling pricing behaviors over bureaucratic discretion and the Byrd Amendment, Evenett

(2006) shows that where the Byrd Amendment raises prices in equilibrium, a seemingly

8
paradoxical result arises as the foreign firm is better off. The foreigner profit rises because of

the excess of price over marginal costs increases and the amount of dumping duties paid per

unit falls as the foreign firm’s price increases. The Byrd Amendment was at last repealed by

the US Congress in January 2006 but the repeal will not go into force until October 2007.

Theoretical Framework

Tariff Effects under the Byrd Amendment

The efficacy of antidumping duties depends crucially on tariff absorption. To see this in a

differentiated product context with Bertrand competition, let the demand curve for the home

product be defined as follows:

(1) Q1 = α1 − β1P1 + γ 1P2

where Q1 is the quantity sold of the home product, P1 is the price paid by home consumer for

the home firm, P2 is the price paid by home consumers for the foreign product. Exogenous

demand shifters such as consumer income and prices of competing foods are suppressed.

The demand curve is downward sloping ( β1 > 0), an increase in the price of the foreign good

increases the demand for the home good ( γ 1 > 0), and demand is more sensitive to own price

than to substitute price ( β1 > γ 1 ). The tariff wedge is defined as:

(2) P2 = P2− + t

where P2− is the f.o.b price received by the foreign seller (ignoring transportation and other

transaction costs), and t is the per-unit dumping duty.

Differentiating (1) and (2) with respect to the tariff yields:

9
∂Q1 ∂P ∂P
(3) = ( − β1 1 + γ 1 ) 2
∂t ∂P2 ∂t

∂P2 ∂P2−
(4) = +1
∂t ∂t

∂P2−
where − 1 ≤ ≤ 0 measures tariff absorption, i.e., the extent to which the antidumping duty
∂t

is borne by the foreign firm as opposed to the home consumer. If tariff absorption is nil

∂P2−
( = 0), i.e., home consumers bear the tariff’s full incidence, (3) reduces to
∂t

∂Q1 ∂P
= − β1 1 + γ 1
∂t ∂P2

and the demand effect is always positive provided:

γ 1 ∂P1
(5) >
β1 ∂P2

i.e., the vertical shift in the demand curve (the shift in the price direction with quantity held

constant) exceeds the price rise associated with the tariff. Conversely, if tariff absorption is

∂P2−
complete ( = -1), the price of the foreign good in the home market is unaffected by the
∂t

∂Q1
duty and the demand effect is nil ( = 0).
∂t

Under Bertrand duopoly tariff absorption is one half. To see this, let Q21 be the

quantity sold by the foreign firm in the home market and Q22 be the quantity sold in

alternative export markets where Q 2 = Q21 +Q 22 is the foreign firm’s total exports. For

simplicity, assume the foreign firm is the sole supply source for non-home markets (a

10
situation approximated in the present study in that Europe, Vietnam’s major alternative

export market for frozen catfish fillets, does not produce the product). The demand curves

are:

(6a) Q21 = α 2 − β 2 P2 + γ 2 P1

(6b) Q22 = α 3 − β 3 P3

where P3 is the price charged by the foreign firm in non-home export markets. As before, all

parameters are positive, i.e., the demand curves are downward sloping ( β 2 > 0, β 3 > 0) and

the home good is a substitute for the foreign good ( γ 2 > 0). C2 and C3 are the foreign firm’s

per-unit marginal cost of supplying the two markets, which is assumed be constant. With

these assumptions the foreign firm’s profit function is:

(7) π 2 = ( P 2 −C2 − t )Q21 + ( P3 − C3 )Q22 .

Bertrand competition implies the foreign firm takes the home firm’s price as given

∂Pi
when selecting its price, and vice versa ( = 0, i ≠ j ) . Maximizing (7) with respect to P2
∂Pj

and P3 under this assumption and solving the resulting equations simultaneously yields the

following reaction curve:

α2 − α3 γ 2 β 1 β 1
(8) P2 = + P1 + 3 P3 + C 2 − 3 C3 + t .
2β 2 2β 2 β2 2 2β 2 2

Under the stated assumptions, the price the foreign firm sets in the home country is

positively related to the home country’s price, the price it charges in non-home markets, the

cost of supplying the home country, and the tariff; it is negatively related to the cost of

supplying non-home markets. Importantly, the coefficient of t is one-half, which means an

11
increase in the duty is split evenly between a rise in the home country’s price of the foreign

good and a decrease in the net price received by the foreign firm. This can be seen most

clearly by substituting (2) into (8) to yield:

α2 − α3 γ 2 β 1 β 1
(9) P2− = + P1 + 3 P3 + C 2 − 3 C3 − t
2β 2 2β 2 β2 2 2β 2 2

∂P2− 1
From (9) = − , which means the foreign firm absorbs half the duty, as claimed.
∂t 2

If γ 2 < β 2 (home consumers are less sensitive to the price of the foreign good than the home

∂P2 1
good), < and an increase in the duty has a larger effect on the price of the foreign
∂P1 2

good in the home market than does an increase in the home price itself.

The analysis is completed by bringing into play the home firm’s reaction curve.

Under the Byrd Amendment the home firm receives a portion of the duty receipts; hence, the

profit function is as follows:

(10) π 1 = ( P1 −C1 )Q1 + ϕ t Q21

where C1 is the home firm’s constant marginal cost and φ is a parameter, less than one, that

indicates the firm’s share of the total duties collected. Maximizing (10) with respect to P1

under the assumption the home firm takes P2 as given yields:

α1 γ 1 ϕγ2
(11) P1 = + 1 P2 + C1 + t.
2 β1 2 β 1 2 2 β1

The interpretation of (11) is similar to (8) in that the home firm’s response to the

foreign competitor’s price depends on the substitutability of the foreign good for the

domestic good. If the goods are perfect substitutes such that β1 = γ 1 , a one dollar increase in

12
the foreign good’s price causes the home firm to raise its price by 50 cents; if the goods are

imperfect substitutes such that γ 1 < β1 , the home firm’s price will rise by less than 50 cents.

Importantly, the Byrd Amendment provides an incentive for the home firm to raise its

price above that which would obtain in the absence of the Amendment. This can be seen by

noting that the tariff term in (11) disappears when φ = 0. The intuition for this result, as

explained by Evenett (2006, p. 734), is that, by raising its own price, the home firm can

increase the demand for imports, which raises the value of duties collected. The added

incentive can be seen most clearly by substituting (2) into (11):

α1 γ 1 γ +ϕγ2
(12) P1 = + 1 P2− + C1 + 1 t
2β1 2β1 2 2β1

where the coefficient of t measures the effect of an increase in the duty on the home firm’s

price holding constant the foreign firm’s net price. This effect is enlarged by an amount

equal to the “Byrd term” ϕ γ 2 > 0. From (12) the duty’s ability to raise home price depends

crucially on product differentiation and is nil when the foreign and home goods are

independent ( γ 1 = γ 2 = 0 ).

Comparison with Perfect Competition

Given the importance of absorption for the efficacy of dumping duties, it is of some interest

to compare the foregoing Bertrand results with the competitive solution. For this purpose,

we assume for simplicity that the home market has just two sources of supply: home

production and imports from the foreign country in which the duty is imposed. The supply

equations for the home and imported goods are:

(13) Q1 = φ1 + ε 1 ( P1 + ψ t ) − θ1C1

13
(14) Q21 = φ2 + ε 2 ( P2 − t ) − θ 2C 2

where the ε i (> 0) parameters indicate the responsiveness of home production and imports to

price, and the θi (> 0) parameters indicate the effect of cost factors on supply. The ψ

~
Q21 ~
parameter in (13) is defined as ψ = ~ ≥ 0 where Q21 ≤ Q21 is the quantity of imports subject
Q1

~
to the duty and Q1 ≤ Q1 is the quantity of domestic production certified to receive duty

revenue under the Byrd Amendment. The composite term ψ t in essence measures the per-

unit subsidy enjoyed by domestic firms as a result of the Byrd Amendment.

Setting supply equal to demand [(13) = (1) and (14) = (6a)] and substituting (2) yields

the following price-transmission equations:

α1 + φ1 γ1 θ1 γ −ψ ε1
(15) P1 = + P2− + C1 + 1 t
ε 1 + β 1 ε 1 + β1 ε 1 + β1 ε 1 + β1

α 2 + φ2 γ2 θ2 β2
(16) P2− = + P1 + C2 − t.
ε2 + β2 ε2 + β2 ε2 + β2 ε2 + β2

Comparing these equations with the previously-derived equations for Bertrand

duopoly reproduced below

α1 γ 1 γ +ϕγ 2
(12) P1 = + 1 P2− + C1 + 1 t
2 β1 2 β 1 2 2 β1

α2 − α3 γ 2 β 1 β 1
(9) P2− = + P1 + 3 P3 + C 2 − 3 C3 − t ,
2β 2 2β 2 β2 2 2β 2 2

the most important difference is in the coefficients of t in (15) and (12). Under Bertrand

competition the Byrd Amendment enhances the positive effect of the duty on domestic price,

14
under perfect competition the Byrd Amendment reduces the duty’s positive effect on

domestic price. Specifically, the sign of the coefficient of t switches from positive in (12) to

indeterminate in (15). The intuition for this result is that firms in a competitive industry have

no ability to influence price and thus respond to the Byrd subsidy simply by enlarging output,

which has a depressing effect on home price. Imperfectly competitive firms, on the other

hand, use their ability to set price by strategically raising price, which lowers quantity

demanded for the home good, but raises imports, which enlarges profits associated with the

Byrd payments. If the Byrd Amendment is removed, ψ = φ = 0 and both models are

consistent in showing an unambiguous positive relationship between home price and the

tariff under the stated parametric assumptions.

Finally, under Bertrand competition tariff absorption equals one half whereas under

perfect competition absorption can range from zero to minus one. For example, in a small-

∂P2−
trader situation where β 2 = ∞ , tariff absorption is complete ( = −1 ) and the duty is
∂t

ineffectual. A full analysis of this case for a homogenous good is in Kinnucan (2003). The

upshot is that market structure plays a crucial role in how the Byrd Amendment affects

market prices and trade flows, but also on the ability of anti-dumping duties to benefit home

producers.

Empirical Model for the Frozen Catfish Fillets

Model Specification

For empirical regression with the frozen catfish fillets case, some following assumptions are

made: i) Vietnamese catfish dominates US catfish import when 90% of the catfish imported

by US in 2000 came from Vietnam (Cohen and Hiebert, 2001). Therefore, US catfish import

15
from other foreign suppliers could be ignored in this study; ii) Catfish fillets produced by US

and Vietnamese processors are differentiated under “labeling” law and biological species

differences; and iii) U.S and Vietnamese firms behave as price setting duopolists.

With the foregoing assumptions the econometric model used to test for duty effects is

5
(17) ∆ ln P1,t = a0 + a1 PRELIM t+ a2 FINAL t +∑k =3 ak Dk ,t + a6 ∆ ln P2−,t + a7 ∆ ln Pp ,t

+ a8 ∆ ln Psal ,t + a9 ∆ ln I t + a10 ∆ ln f t + a11∆ ln Wt + a12 ∆ ln Gt + a13 ∆ ln P1,t −1 + e1,t

5
(18) ∆ ln P2−,t = b0 + b1 PRELIM t+b2 FINAL t + ∑k =3 bk Dk ,t + b6 ∆ ln P1,t + b7 ∆ ln Pp ,t

+ b8 ∆ ln Psal ,t + b9 ∆ ln Po,t + b10 ∆ ln I1,t + b11∆ ln f t + b12 ∆ ln X t + b13 ∆ ln P2−,t −1 +e 2,t

5
(19) ∆ ln Q1,t = c0 + c1 PRELIM t+c2 FINAL t +∑k =3 ck Dk ,t + c6 ∆ ln P1,t + c7 ∆ ln P2−,t

+ c8 ∆ ln Pp ,t + c9 ∆ ln Psal ,t + c10 ∆ ln I1,t + c11∆ ln Q1,t −1 + e3,t

where ∆ ln xt = ln xt − ln x t −1 denotes the first-difference operator. Equations (17) and (18)

correspond to the price reaction functions (12) and (9) whereas equation (19) corresponds to

the domestic demand equation (1). The time subscript t denotes months (t =1, 2, …, 84) for

January 1999 through December 2005) and the e i ,t (i= 1, 2, 3) denote random disturbance

terms. Pp, Psal, Po and I are exogenous demand shifters. Psal,t and Pp,t are the prices of

imported salmon and poultry respectively in the US in month t. Po,t is the price of

Vietnamese catfish export to non-US markets. It is US personal income per capita while Wt

represents for US wage rate in manufacture sectors and Gt represents domestic energy price

in month t. Variable ft is a monthly freight index for shipments from the Pacific used to proxy

shipping costs from Vietnam to the US. Xt is the real US-Vietnam exchange rate (VND/$) in

16
month t. A more complete description of the data and sources are provided in Table 2. The

price of Vietnamese catfish exported to non-US markets is deflated by the world Consumer

Price Index (CPI); all other monetary variables in the model are deflated by US Consumer

Price Index.

The tariff effects are modeled using two dummies: PRELIM for the period of

investigation (June 2002 through July 2003) and FINAL for the implementation period

(August 2003 through December 2005). The PRELIM variable is included to test whether

foreign firms raise price during the investigation period in order to reduce the dumping

margin in the event of a positive ruling, as proposed by Blonigen and Heynes (2002) and by

Feenstra (2004). The tariff effect is the sum of the estimated coefficients from the two

dummies. Quarterly dummies are included to control for seasonal demand shifts (Kinnucan

and Miao 1999). The first difference logarithm specification is used because preliminary

analysis showed the variables to be stationary, coefficients of dummy variables can be

interpreted as relative change, and coefficients of continuous variables can be interpreted as

elasticities. Lagged dependent variables are specified to test for dynamic effects.

To determine the producer impacts of the tariff we augmented the foregoing

wholesale-level model with the following inverse demand equation for catfish at the farm

level:

5
(20) ∆ ln Pf ,t = d 0 + d1 PRELIM t+ d 2 FINAL t + ∑k =3 d k Dk ,t + d 6 ∆ ln P1,t + d 7 ∆ ln Q f ,t −5

+ d 8 ∆ ln Pp ,t + d 9 ∆ ln Psal ,t + d10 ∆ ln Pf ,t −1 +e 4,t

17
where Pf,t is the price paid by US processors for live catfish purchased from farmers in month

t, Qf,t is the quantity of live catfish purchased by US processors in month t, e 4,t is a random

disturbance term, and the other variables are as previously defined.

Regression results

To account for possible cross-equation correlation in the error terms the equations were

estimated as a system using Seemingly Unrelated Regression (SUR). To assess the

sensitivity of results to estimation procedure two sets of estimates are provided: a wholesale-

level model consisting of equations (17) – (19) and a combined wholesale-to-farm model

consisting of equations (17) – (20). Because estimation results are similar our discussion

focuses on the wholesale model unless indicated otherwise.

Focusing first on the demand equation the model has an R2 of 0.54 and most of the

estimated coefficients have the correct signs. The estimated coefficient of US price is -2.4

with a t-ratio of -3.3, which suggests the domestic demand for US fillets is price elastic. This

implies that if home industry raises price to increase tariff revenues, as predicted by the

Bertrand duopoly model, revenues from domestic sales will fall. The estimated coefficient of

US income is 1.4 with a t-ratio of 1.4. Although the estimated income coefficient is larger

than one, a one-tail test does not permit one to conclude that frozen fillets are a luxury good.

Importantly, the estimated coefficient of Vietnam price is 0.13 with a t-ratio of 2.4. This

suggests a tariff-induced increase in the price of Vietnam fillets will have little effect on the

demand for US fillets. That US fillets are a poor substitute for Vietnam fillets should not be

surprising in that the former are substantially more expensive (see table 1). And this is true

even allowing for full tariff pass through, i.e., assuming not of the tariff is absorbed by

Vietnamese exporters. The estimated coefficient for the lagged dependent variable is -0.53

18
with a t-ratio of -6.2. The negative adjustment elasticity means that long-run elasticiites are

smaller than short-run elasticities, which probably reflects inventory behavior. (In the short-

run processors can meet a demand increase by drawing down inventory; in the long run

production must be increased.) The remaining variables, including the two policy dummies

PRELIM and FINAL, are insignificant at usual probability levels.

Turning to the price reaction functions the US price equation shows better

explanatory power (R2 = 0.48) than the Vietnam price equation (R2 = 0.26), as might be

expected due to the use of proxy variables in the latter. Coefficient estimates are consistent

with theory in that the price reaction functions are upward sloping with the estimated

coefficient of rival’s price in each equation positive. However, the effects are asymmetric

with estimated coefficient of US price elastic at 5.0 (t-ratio = 3.8) and the estimated

coefficient of Vietnam price inelastic at 0.02 (t-ratio = 2.6). Thus, whereas the Vietnam

price is highly sensitive to changes in the US price, the reverse is not true. In particular, a

10% increase in the Vietnam price would raise the US price by a mere 0.2% ceteris paribus.

This result reinforces the inference from the demand equation that US fillets are a poor

substitute for Vietnam fillets over the observed price range.

The estimated coefficients of the lagged dependent variable in the US and Vietnam

price equations are 0.34 and -0.46, respectively, with t-ratios exceeding 3.8 in absolute value.

Dividing the foregoing price effects by one minus these estimated coefficients yields long-

run elasticities of 3.4 and 0.03. Hence, the conclusion that price reaction is highly

asymmetric is not much affected by length of run.

Prices of salmon imports and poultry have no significant effect on both prices of the

domestic and Vietnamese catfish fillets. However, freight cost from Pacific gives significant

19
and expected effects on the prices. A 10% increase in freight cost from Pacific raises price of

the domestic product by 1.1% but lowers price of the import from Vietnam by 12.3%.

PRELIM is not significant in either equation. Hence, the hypothesis that firms set

price strategically during the investigation period to influence the tariff rate is rejected.

FINAL is significant in the US price equation but not in the Vietnam price equation.

Recalling that the Vietnam price is measured exclusive of the tariff, the lack of significance

of FINAL in the Vietnam price equation implies US consumers bore the tariff’s entire

incidence. Despite the tariff’s apparent ability to raise the US price of the imported product,

it had little effect on the price of the US product. In particular, the estimated coefficient of

FINAL in the US price equation is 0.005, which means the US price during the duty period

increased by a mere 0.5%, ceteris paribus. The reason for this modest effect is the low

cross-price elasticity of demand as explained in connection with the demand equation.

In the extension model to explore the tariff effect on US farm price (Table 4), the

regression results for US home price and Vietnamese price equations are similar to the ones

in Table 3, except coefficient of freight cost is not significant any more. The tariff

coefficient in demand equation for US frozen catfish fillets becomes significant, although

just at 90% level. After the US antidumping is implemented, the demand for US catfish

fillets rises by 3.1% associated to a 0.6% improvement in its price. However, the positive

effect of the antidumping on US farm price is not significant.

Conclusion

The empirical results suggest domestic and imported catfish compete in a competitive

condition rather than in a Bertrand strategy. In a duopoly competition, the results can be

explained by the nullification of the duty effect as time allows both firms adjust their prices.

20
Further studies are necessary to examine long term effects of the antidumping measures. In

the meantime, our analysis suggests antidumping duties are a weak tool for protecting the

domestic catfish industry. The basic reason is that US fillets are a poor substitute for

Vietnam fillets (cross-price elasticity = 0.13). Hence, a tariff that raises the price of the

imported product has little effect on the demand for the domestic product. Indeed, our

empirical estimates suggest the 45-64% duties imposed on imported frozen catfish fillets

raised the domestic price of frozen catfish fillets by less than one percent, and had no

measurable effect on the farm price. Still, industry efforts were not futile in that plaintiffs in

the antidumping case were able to collect some $9.2 million in tariff revenue over the sample

period (equivalent to 3% of wholesale value) thanks to the Byrd Amendment.

21
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25
Table 1. Imports, Production and Prices of US Catfish Industry 1999-2005

1999 2000 2001 2002 2003 2004 2005

Frozen fillets imports from VN (mil. lb.) 1.99 7.04 17.12 9.62 4.25 6.57 17.42

US frozen fillets production (mil.lb.) 102 120 115 131 125 122 124

US Farm Production (mil. lb.) 597 594 597 631 661 630 601

Vietnam export price ($/lb) 2.04 1.52 1.26 1.29 1.21 1.15 0.93

US frozen fillets price ($/lb) 2.76 2.83 2.61 2.39 2.41 2.62 2.67

Farm price (cent/lb.) 73 75 65 57 58 70 72

Table 2. Description of variables and source of data

Variable Description Unit Source of data

P1 Domestic price of frozen catfish fillets $/lb USDA

P2 - f.o.b price of Vietnamese frozen catfish fillets $/lb NMFS

Psal Price of salmon import $/lb NMFS

Pp US poultry price $/lb IMF

I US personal income per capita $/year US BEA

F Freight index from Pacific US BLS

W US Wage of manufacture sector $/hr US BLS

G Energy index in US market US BLS

X Real exchange rate of VND against US$ VDN/$ www.oanda.com

26
Table 3. SUR Estimates of Price Reaction and Demand Equations for Frozen Catfish

Fillets

US Price Vietnam Price US Quantity

Variable Coef. t-value Coef. t-value Coef. t-value

PRELIM 0.000 0.068 0.015 0.426 0.001 0.054

FINAL 0.005** 2.126 -0.022 -0.783 0.019 1.207

US domestic price 4.972*** 3.801 -2.359*** -3.268

Vietnamese price 0.019*** 2.613 0.131** 2.407

Non-US market price 0.022 0.395

Poultry price 0.019 0.253 -0.289 -0.293 -0.593 -1.068

Salmon price 0.016 1.208 -0.026 -0.146 -0.122 -1.211

US per capita income 0.128 1.228 -0.215 -0.149 1.421* 1.821

Manufacture wage 0.207 1.329

Energy index 0.004 0.151

Freight index from Pacific 0.114** 2.106 -1.233* -1.658

Exchange rate 0.192 0.705

Lag dependent variable 0.345*** 3.879 -0.464*** -4.657 -0.533*** -6.246

First quarter 0.008** 2.374 0.014 0.341 0.202*** 8.392

Second quarter -0.003 -0.914 0.049 1.085 0.039* 1.694

Third quarter -0.005* -1.748 0.050 1.242 0.090*** 4.034

Constant -0.003 -1.213 -0.025 -0.741 -0.095*** -4.980

R2 0.48 0.26 0.54

*, **, *** significant at 0.1, 0.05 and 0.01 levels

27
Table 4. SUR Estimates of System with Farm Price

US Wholesale Price Vietnam Price US Quantity US Farm Price

Variable Coef. t-value Coef. t-value Coef. t-value Coef. t-value

PRELIM 0.002 0.657 -0.004 -0.106 0.012 0.582 0.004 0.643

FINAL 0.006*** 2.531 -0.029 -0.963 0.031* 1.824 0.006 1.167

US domestic price 5.087*** 3.656 -2.958*** -3.830 1.148*** 4.640

Vietnamese export price 0.017** 2.318 0.126** 2.244

Non-US market price 0.050 0.919

Farmed fish demand (5th lag ) -0.084*** -3.139

Poultry price 0.004 0.049 -0.441 -0.382 -0.451 -0.704 -0.113 -0.568

Salmon price 0.016 1.172 -0.024 -0.127 -0.169 -1.614 -0.070** -2.161

US per capita income 0.135 1.291 -0.935 -0.660 1.454* 1.865

Manufacture wage 0.232 1.472

Energy index 0.003 0.133

Freight index from Pacific 0.073 1.263 -0.952 -1.207

Exchange rate -0.531 -1.055

Lag of dependent variable 0.320*** 3.444 -0.460*** -4.463 -0.547*** -6.321 0.208** 2.248

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First quarter 0.009** 2.471 0.009 0.223 0.205*** 8.350 0.011 1.596

Second quarter -0.003 -0.831 0.056 1.205 0.029 1.201 -0.003 -0.467

Third quarter -0.005 -1.562 0.055 1.362 0.088 3.888 0.001 0.189

Constant -0.005 -1.629 -0.018 -0.504 -0.103*** -5.279 -0.004 -0.748

R2 0.46 0.23 0.54 0.55

Durbin h -1.53 -0.11 -1.65 0.90

*, **, *** significant at 0.1, 0.05 and 0.01 levels

29