Rejected consignment of Indian shrimps – Ethoxyquin or Non tariff barrier?

Rejected consignment of Indian shrimps – Ethoxyquin or Non tariff barrier?

Amlan Ray

Profile of author:

Amlan Ray is a B.Tech from University of Calcutta and MBA from IISWBM. Post MBA he started his career with A.V.Birla group and later moved to Forbes Gokak, A TATA enterprise. He switched over to Academics in 2003 and joined IIPM’s Chennai campus as Dean- Administration. In 2008, Amlan moved to Lucknow to set up a new campus of IIPM. After successful completion of the project, Amlan joined Kolkata campus of IIPM since 2012 as the Dean.

Amlan’s teaching and research area focuses on Economics and Foreign Trade. Due to his interest in Economics, he has additionally obtained a Masters in Economics and currently pursuing his PhD in foreign trade. Amlan has written several columns on Economic issues in Microsoft Network Website and contributed research articles in different publications including IIPM Think Tank. Amlan has also conducted a workshops funded by World Bank in the areas of Health Economics on behalf of Planman Consulting for the health professionals of Sri Lanka.

Abstract

With more and more trading of fresh food items, health and hygiene has become concern for all the trading nations. Though the perspectives in developed and developing countries are not similar, still the concern for sanitary and phytosanitary protection remains valid for both. Often developed countries are accused of using these protection clauses as non tariff barriers. Recently, we saw Indian Shrimps were almost on the verge of ban in Japan. 200 plus consignments got rejected till the end of October. It has affected lacs of aquaculture farmers in Odisha and West Bengal. Japan is still accepting fish with 1 PPM Ethoxyquin; an anti oxidant but suddenly lowered the permissible level of Ethoxyquin in shrimp to 0.1 PPM. This norm is much more stringent compared to the standards in other developed countries in European Union and USA. Do WTO rulings allow Japan to suddenly implement this kind of safety standard? What is the way out for the Indian firms engaged in Shrimp exports? And the bigger question is how the marine industry and the Government in India will react to this erratic change of norms? Indian marine industry has sailed through rough weather earlier and we can hope it to tide over this crisis as well.

Middle class Bengalis in Kolkata fish market suddenly had a reason to celebrate. The tiger prawns, a delicacy for any Bengali family was suddenly available in abundant quantity and that too at a very cheap price! Usually Tiger Prawns are mainly for exports and seldom available in the local market. Even if you come across, you need to be prepared to pay a fortune. The celebration continued for a couple of days followed by a rumor that these are toxic prawns rejected by the exporters. The rumor had some substance in it. Indeed there were rejections of hundred of consignments of shrimp exported to Japan from Eastern India. It is debatable and probably untrue to call this toxic. But the consignments were rejected due to an anti oxidant named Ethoxyquin in Indian shrimps. Food safety commission of Japan arbitrarily and without any prior intimation made it mandatory to test all import consignments for Ethoxyquin and that too at a permissible limit of only 0.1 PPM in shrimp while fish continues to be imported at 1 PPM. There is no scientific basis of determining ethoxyquin at a level of 0.1 PPM. Japan himself is allowing 1 ppm for fish from India. EU or USA also does not have this kind of stringent norms. But where is the alternative for the marine exporters? Japan is one of the largest importers of marine products from India. 60 percent of the tiger prawns cultivated in Odisha and West Bengal are exported to Japan. Japan, Europe and USA combined market has a share of 55 % of all sea food export from India.

The belligerent Chief Minister of West Bengal Ms. Mamta Banerjee writes in the first week of October to Union Commerce Minister Mr. Anand Sharma for immediate intervention. She asks Government of India to take up the issue with the authorities in Japan. As a matter of fact, in the first week of September itself Indian delegation comprising Ms. Leena Nair; the Chairperson of Marine Product Export Development authority ( MPEDA) and Mr. S.K.Saxena Director, Export Inspection Council paid a visit to Japan. They took up the issue with the Japanese Minister for Health, Labor and Welfare Mr. Yoko Komiyame who referred the matter to the Food Safety commission. Indian delegation mentioned about the plight of the 50000 to 100000 people who depends on aquatic farming. But the delegation returned empty handed. As per newspaper report rejected consignments were initially 10, eventually rose to 131 in the first week of September and finally crossed 200 by the end of the month.

Ethoxyquin is a quinoline based antioxidants and an important ingredient in shrimp feed with almost all shrimp units in India using it. Japan permits a minimum residue level of 1 PPM for fish but for shrimp made the permissible level 0.1 PPM. Though Indian aquatic farmers were caught unaware, Japan started this process with other countries in the month of May itself.

 According to Department of Animal Husbandry, Dairying & Fisheries ( DADF) exports from India include black tiger and fresh water shrimps, frozen versatile fish, frozen  skipjack and squid. These are sourced mostly from Andhra Pradesh, Maharashtra, Kerala, Tamilnadu and West Bengal. But incidentally, the rejected consignments were mostly from West Bengal and Odisha. These two Eastern states together export almost Rs 1200 crore to Rs 1500 crore worth of marine products annually from India.

Exports from Vietnam

Though Indian exporters were caught off guarded, the Japanese authorities started testing Ethoxyquin since May 18^th on Vietnamese imports. In June, 2012 Vietnam reviewed the situation and made a list of aquatic feed without Ethoxyquin. On June, 15^th, 2012 Directorate of Fisheries issued documents to direct sub departments of Aquacuture to notify Japan’s alert to local aquatic feed produced. Directorate of Fisheries asked feed producers not to use Ethoxyquin. They also notified that sub departments of Aquaculture must inspect local feed producers and report to Directorate of fisheries about the feed products containing Ethoxyquin. The department in turn intends to remove all those feed products from the list of feed products legally used. Sub Department of aquaculture also guided farmers to stop feeding shrimp one day before harvesting in order to reduce the residue in shrimp.

As an immediate reaction to Japan’s stance on Ethoxyquin , the Vietnamese Ministry of Agriculture and Rural Development and the Vietnam Association of Seafood Exporters and Producers ( VASEP) have taken following measures to keep its presence in Japanese Market unaffected:

In addition to the continued diplomacy to resist any discrimination against Vietnamese shrimp, Agricultural Minister of Vietnam suggested agricultural sector to search for an alternative substance replacing Ethoxyquin. Moreover the sector is advised to regulate Ethoxyquin level in shrimp feed at 0.5 ppm instead of prevailing rate of 150 ppb.

Mr. Bui Duc Quy, Director of the Aquatic Testing, Experimenting and Quarantine Centre under the General Department of Fisheries said that the centre had found two antioxidants similar to Ethoxyquin. One is BHA (Butylated Hydroxyl Anisole) and BHT ( Butylated Hydroxyl Tolvence). However these substitutes of Ethoxyne would be comparatively costlier.

Exports from Thailand

“Shrimp exports from India have been banned because of the use of antibiotics, which Vietnam and China are also doing” said Somsak Praneetatyasai, President of Thai Shrimp Association. Thailand is seeing a windfall opportunity in the Japan Government’s action against India and Vietnam. Shrimp farmers in Thailand use more pro-biotic medicine instead of antibiotics. Thailand has two major markets abroad United States and Europe. Both were hit by economic crises. Now Japan’s dependence on the imported shrimp is a big opportunity for Thailand. Thai shrimp export to the USA have dropped down to 40 percent from 50 percent of the total. However export to Japan has risen to 23 percent. Marine Industry of Thailand can take solace in the sudden increased demand of Thai shrimp in Japan.

Earlier experiences

This is not the first time Shrimp industry in India is tasting the troubled water. Earlier in 2003, Indian exporters faced hard times due to antidumping charges in USA.  During the antidumping case in USA, we found that Indian exporters got good support from the importers associations in USA. Can there be a similar support from the importers lobby in Japan this time? Earlier in 1976, Indian shrimp faced ban in USA as Indian farmers did not use ‘turtle extruder devices’ to protect endangered turtles. But finally India received a favorable judgment as Indian shrimp industry is not mechanized.  The EU antibiotic residue alert in seafood in 2002 threatened to curtail seafood exports from India.  

Bhattacharya (2005) observes that in case of international trade disputes, it takes long time in settlement. During this interim period trade is affected due to uncertainty amongst importers. Importers are not usually willing to take the risk of dealing in a controversial item. He cites the example of antidumping case against Indian leather. In that case though the final verdict was in favor of India but it came after two years.  India was out from South African market permanently due to this uncertainty. In the context of antidumping case against India in USA, Bhattacharya concludes that “The Shrimp industry in India had always focused on one or two major markets for growth. Previously it was Japan and during the last few years it has been the United States. It has now learnt the importance of diversification.” But has it really understood the importance of being present in multiple markets?

Marine Industry in India

For the first time in 2011-12, Indian Marine export has crossed the 3.5 Billion USD. Total export for the year was 862021 tonnes valued at 3508.45 USD million. This is a record in terms of aggregate volume as well. Sea food export in 2011-12 had a year to year growth of 6.02 % in quantity and 22.81 % in value. The figure should be considered in the context of depressed global market under recession.

Major items of exports and export markets

Frozen shrimp continued to be the major export value item accounting for 49.63 % of our export earnings. Shrimp export during 2011-12 has increased by 24.86 % in quantity and 37.99 % in US $ value indicating a rise in the average price.

South East Asia is presently the largest buyer of Indian marine product with a share of 25.09 % in USD realization. EU had a share of 22.96 %, USA 18.17 %, Japan 13.01 %, China 7.51 %, Middle East 5.33 % and other countries 7.95 %.

Export to South East Asia grew by 86.51 %. Increase of frozen shrimp contributed largely to the growth. US market also registered a growth of 45.39 % and again frozen shrimp is the biggest contributor. Japan registered a positive growth of 22.35 % in USD. Exports to China showed a massive decline of 40.17 % in value.
Exports of frozen shrimp to South East Asia have registered a growth of about 356.36 % in USD. Exports of frozen shrimp to USA have also showed a growth of about 47.55 % in USD t in 2011-12.

MAJOR MARKET WISE EXPORTS

(Q: Quantity in Tons, V: Value in Rs. Crore, $: US$ Million)

Country	Unit	Share %	April 2011- March 2012	April 2010- March 2011	Variation	(%)
Japan	Q: V: $:	10 12.9 13.01	85800 2140.67 456.35	70714 1683.39 373.00	15085 457.28 83.36	21.33 27.16 22.35
USA	Q: V: $:	8 17.94 18.17	68354 2977.53 637.53	50095 1990.26 438.49	18259 987.26 199.04	36.45 49.60 45.39
E.U.	Q: V: $:	18 22.96 22.96	154221 3810.44 805.38	170963 3459.40 765.15	-16742 351.04 40.23	-9.79 10.15 5.26
China	Q: V: $:	10 7.59 7.51	84515 1259.23 263.30	159147 1977.81 440.10	-74631 -718.58 -176.80	-46.89 -36.33 -40.17
South East Asia	Q: V: $:	40 25.27 25.09	343962 4193.27 880.09	233964 2114.48 469.36	109998 2078.79 410.73	47.01 98.31 87.51
Middle East	Q: V: $:	4 5.39 5.33	38155 894.38 186.85	43983 670.35 148.31	-5827 224.03 38.53	-13.25 33.42 25.98
Others	Q: V: $:	10 7.96 7.95	87014 1321.72 278.94	84225 1005.77 222.50	2789 315.94 56.44	3.31 31.41 25.37
Total	Q: V: $:	100 100 100	862021 16597.23 3508.45	813091 12901.47 2856.92	48931 3695.76 651.53	6.02 28.65 22.81

Source: MPEDA

MPEDA has an ambitious target of USD 4.5 Billion for the year 2012-12. Their Chairperson has already visited Japan to solve the impasse over rejection of Indian shrimp. We have seen MPEDA playing a crucial role in the growth of Marine Industry in India. It is a statutory body set up by Govt. of India under MPEDA act 1972. MPEDA is under the ministry of commerce, Govt. of India. MPEDA is the nodal agency for promotion of export of marine products from India. It has presence in all maritime states through its field office to promote export as well as aquaculture production. If we want to implement any change in the shrimp feed, MPEDA will have to play a major role.

Safety standard in food trade and WTO

 Aparna Swahney in her paper ‘Quality Measures in Food Trade’ writes: “The concern for food safety and quality in global trade has increased with the marked shift in trade towards fresh food… Fresh food is more prone to certain microbiological contamination” The food quality and health standards are legal in global trade under the provision of the WTO agreement on the application of Sanitary and phytosanitary measures (SPS). They are meant to protect human health.  They are legal under the WTO agreement on Technical barriers to Trade (TBT). But SPS or TBT must not be used as a non tariff barrier to trade.  Both Developed and developing countries have raised concern about non tariff barriers in food trade. Developed countries raise the issue of restrictive sanitary measures based on precaution without adequate scientific basis. Developing countries are more concerned about the lack of harmonization, non recognition of equivalency standard.

WTO agreement of sanitary and phytosanitary protection states “Reaffirming that no Member should be prevented from adopting or enforcing measures necessary to protect human, animal or plant life or health, subject to the requirement that these measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between Members where the same conditions prevail or a disguised restriction on international trade”

Article 4 on Equivalency states “Members shall accept the sanitary or phytosanitary measures of other Members as equivalent, even if these measures differ from their own or from those used by other Members trading in the same product, if the exporting Member objectively demonstrates to the importing Member that its measures achieve the importing Member's appropriate level of sanitary or phytosanitary protection. For this purpose, reasonable access shall be given, upon request, to the importing Member for inspection, testing and other relevant procedures.”

We find in case of Ethoxyquin, the permitted level is way above 0.1 ppm in USA and EU market. Even in Japan for fish the accepted level of Ethoxyquin is 1 PPM.

Article 7 on transparency states “Members shall notify changes in their sanitary or phytosanitary measures and shall provide information on their sanitary or phytosanitary measures in accordance with the provisions of Annex B.”

Annex B of the agreement states further” Except in urgent circumstances, Members shall allow a reasonable interval between the publication of a sanitary or phytosanitary regulation and its entry into force in order to allow time for producers in exporting Members, and particularly in developing country Members, to adapt their products and methods of production to the requirements of the importing Member.”

The way Japan made Ethoxyquin testing compulsory, it appears to defeat the principle mentioned in Article 7. As already mentioned by Indian Government, if it really submits the matter for intervention of WTO, what will be the outcome?

India’s Foreign Trade Policy and Marine Export

Govt. of India has identified certain sectors under its focus product scheme (FPS). Under FPS exports from a few sectors like Marine, Handicraft, Leather etc. are encouraged and incentivized. Now marine sector is a priority sector for India because of the employment generation capability of the sector and low investment. Capital output ratio in Marine sector is quite low. Marine exports comprise almost 4 percentages of our total merchandise exports from India. More than 1 lac people involved in aquaculture are now affected due to the rejections of our consignments in Japan. USA and EU markets are the biggest for Indian marine products. But both are affected due to recession. India is trying to diversify its exports to Latin America and Africa. But feasibility of export of marine products to these new markets is questionable. Govt. of India has limited options before it to protect the interest of marine industry. WTO route is tempting but time consuming. Will MPEDA try to change the pattern of fishmeal like Vietnam? Or will it depend on its negotiation skill to impress upon Japanese authority?

Poser for the reader:

What should be the strategy of Govt. of India to solve the impasse? What should be the approach of the Marine export firms of India in this crisis? 

 

 

 

 

 

 

 

Bibliography:

1.       ( March, 2005) Sawhaney, Aparna ‘Quality Measures in Food Trade: The Indian Experience’; The World Economy, Vol 28, No 3,pp. 329-348,( http://smallb.in/sites/default/files/knowledge_base/best_practices/QualityMeasruesinthefoodtrade.pdf)

2. ‘Japan's move to inspect Indian consignments for Ethoxyquin rattles shrimp exporters’ by SARMA,  CH. R.S. & KURIAN ,VINSON ; The Hindu Business Line; Chennai Edition dated 12^th September, 2012

3.       ‘Centre sounds hopeful on Japan lifting ban on shrimp import’; Times of India, Bhubaneshwar edition; 4^th October; 2012

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5.       ‘Japan likely to ban shrimp imports from India’; Business Standard; Calcutta edition; August 24^th; 2012

6. ‘Mamata Banerjee seeks bailout for seafood exporters from commerce ministry’ by Ghosal Sutanuka; The Economic Times; Calcutta edition dated 3^rd October.

7.       ‘Shrimp export sags under surge in Japan's rejection’ by Joseph,George ; Business Standar, Calcutta edition  dated 05 Sep 12

8.       ‘Shrimp exports to Japan fall on anti-oxidant issue’ by Joseph, George; Business Standard Calcutta edition dated 16^th November, 2012

9. http://talkvietnam.com/2012/09/effort-to-deal-with-ethoxyquin-matter-shrimp-export-to-japan/
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11. http://vccinews.com/news_detail.asp?news_id=26962
12. http://www.eng.vasep.com.vn/Daily-News/53_5644/Ethoxyquin-a-huge-obstacle-for-Vietnam-shrimp-exported-to-Japan.htm
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14. http://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm

15.   The Indian Shrimp Industry Organizes to Fight the Threat of Anti-Dumping Action by Bhattarcharyya , B. (http://www.wto.org/english/res_e/booksp_e/casestudies_e/case17_e.htm)