Concerns about shipping American lobster to China via Canada to avoid 25% tariffs

The Canadian Lobster Council is investigating whether US exporters are sending American lobster to China labeled "Canadian lobster" to avoid 25% tariffs on China. Underlying news can reveal.

Geoff Irvine, executive director of the board, said Undercurrent so far, he does not know for sure if such transhipments are taking place, but he is concerned and is planning to warn members of his group against this behavior.

"The rules of the country of origin for Canada and the United States are pretty clear," said Irvine. "If a live lobster was coming from America, it must be called a product of the United States, even if it comes out of a Canadian airport." A Canadian lobster leaves an American airport, it is safe to say. is still a Canadian lobster.

"We are very proud of our brand and we do not want other lobsters to be sold under this brand."

The trans-shipment of American lobster to China via Canada has been a risk since the Chinese government imposed a 25% tariff on July 6 on US $ 32 billion worth of US products, including lobster, seafood and seafood. Soybean, the Customs Duties – China's second round against US imports and retaliation on US President Donald Trump's tariffs on Chinese products of the same value – direct imports of American lobster into China's exporter l & rsquo; Put it.

But if the companies are actually involved, it would only be a matter of time before someone gets caught, said a Canadian-based seafood manager, who asked for the information. anonymity. Undercurrent.

The lobster world is small and when a dozen employees of a Canadian company realize that a large shipment of American lobsters arrives someday and travels to China the next day, the people of the Industry are hearing about it.

A US-based source, who also wanted to be anonymous, was categorical: "There are many [transshipment] pass C & # 39; is a rate of 25%; there is a great incentive. People could get off in pickups to go to Maine and take the lobsters to Montreal or Toronto, where they could be shipped by air freight, "he said, although he admitted he did not have seen.

The neighbor of the United States to the north is in any case an important center of transformation of its live lobster.

Mainly used to produce tails and meat, American lobsters are often shipped to Canada, processed, packaged and labeled by Canadian companies, then sold domestically or, as is often the case, re-exported to the United States. United.

The fall of August will be greater

A potential driving force for transhipment is a potentially large gap in the Chinese live lobster market due to new punitive Chinese tariffs.

In July 2018, the United States exported 244.6 tonnes of lobster living in China for $ 4.12 million, down 29% from July 2017, according to data from NOAA (National Oceanic). and Atmospheric Administration).

Although this is not the case with the transhipment scandal, in the same month, US exports to China dropped, the United States shipped 4845 tonnes of live lobster to Canada valued at 48.7 million, up 137% from July 2017 exports, according to NOAA.

Canada returned 5,984 tonnes of lobster (60% frozen, 35% live and 5% other) to the United States, with a combined value of $ 107.6 million in July 2018, up 4% from the previous year. volume and 11% in value.

Increased shipments to Canada enabled the US lobster industry to increase live lobster exports in July 2018 to 5,847 tonnes worth $ 64.9 million, a 74% increase in volume and 52% compared to July 2017.

Other markets also absorbed more American lobsters in July 2018 than in July 2017, including Singapore, Taiwan, Thailand and Hong Kong, but the United States sent fewer lobsters to Belgium, France. , in South Korea and Vietnam.

The decline in US exports to China in August – the first full month under tariffs – is likely to be worse, says Stephanie Ladeau, whose Lobster Company in Arundel, Maine, exports for $ 10 million. lobster living in China during a normal year.

"Since July 5, I've shipped seven or eight small orders. We are probably shipping a hundred of them during this period, she said. [from the trade data]it would be a lot more. There was an influx of ships in the first week. "

"Based on what my freight forwarder tells me, I would say it's down about 90%."

She said that Chinese customers had already told her that they would buy Canadian lobster instead because of the additional fees.

Another explanation

John Norton – founder and president of Cozy Harbor Seafood, one of Maine's largest lobster processors – recently offered a different explanation to the Bangor Daily News for the boost of US exports to Canada. He said lobsters on the Maine coast had already been eliminated this year, resulting in larger catches than usual in June and July.

The initial volume of "new shell" lobsters by its suppliers was up 18%, he said, while indicating that higher wharf prices of 25 to 35 cents per pound (9%) could affect behavior.

Indeed, the typical Maine harvest beginning in July is one of many differences between the lobster industries of the United States and Canada – and one of the reasons for the close relationship that they have. is established over the years.

Maine's Maine pickers – the state that produces about 90% of all American lobster – are allowed to fish all year, but do most of their fishing between July and November (see chart ).

Canada, on the other hand, launches its lobster harvest on the last Monday in November, a date known as "Dumping Day", when its two largest fishing grounds off Nova Scotia (Lobster Fishing Areas 33 and 34). ) seasons of several months. Several dozens of other LFAs launched the seasons the following spring and only a few continue to function in the early fall.

For example, to avoid Canadian processing plants being left idle, Canada imports a large amount of US lobster in late summer and fall, while some live shipments

But despite significant volumes destined for Canada, another Canadian source notes the differences between US and Canadian products. Although Maine lobsters are mostly shellfish, the lobsters caught in Canada are most often "hard shells": unlike a newly molted new shell, a hard-shelled lobster has grown longer to become its new garment. be denser with meat and contain less water.

Hard-shelled lobsters are better for export because they are more equipped to survive a long trip, according to industry sources.

"At this time of the year, Canadian lobster is a high-shell, fully-dried, high-protein lobster," said a Canadian lobster seller. "American lobster is a post-malt, firm-shell, low-protein product. the same product even though, from a scientific point of view, they are both Homarus americanus. "

Canadian lobster exporters keep much of their shellfish stocks for live exports in cold water tanks until October, the source added. By the end of July, Canada had 20 lbs of "hard" quality lobster stored in cold water supplies, a source said recently. Undercurrent.

US soft-shell also goes for live export

However, despite the presence of hard-shelled lobsters in Canada for export and the presence of large storage tanks in the country, American lobster has clearly advanced in Chinese markets.

In 2017, China was the second largest export market in the United States, according to NOAA data, with 7,452.7 tons of live or fresh American lobsters exported to the country. In addition, the value of $ 128 million in total live lobster exports to China in 2017 represented 23% of the total value of US $ 566 million worth of US lobster exports last year, according to NOAA data.

Indeed, historical trade data show that Chinese lobster imports from the United States typically peak in the late summer and fall (see chart), although landings are almost all new lobsters.

According to industry sources, US exporters achieved this goal by sending 30% or more of their new creatures abroad, offsetting the difficulty of new lobsters in surviving long journeys.

The United States has transportation options near Maine, with major commercial flights leaving daily Boston, Massachusetts and New York, but the Canadian lobster industry has recently responded to this challenge by working with forwarders no less than three direct flights per week between Halifax, Nova Scotia, and Changsha, China, and two in Seoul, South Korea.

New-shell American lobsters also come with better prices. According to a Canadian source, American shelled lobster currently sells for $ 3.07 to $ 3.83 a pound cheaper than Canadian hard shelled lobster.

During a recent visit to China, Undercurrent live lobsters were offered at a discounted price on the largest wholesale market in southern China in Guangzhou, despite the 25% duty. In a high-end seafood restaurant in central Guangzhou, lobster labeled Canadian Lobster was also sold at a discount.

Seafood guide, a publication of Chinese industry, reported that lobster prices in Guangzhou and Shanghai were "stable", although prices in Beijing have risen recently (see the price chart). Commentators of a recent story published by Seafood guide According to WeChat, recent lobster prices in China were cheap.

Lobster wholesale price in China, September 13, CNY per kilogram

Size in grams per lobster	Shanghai	Guangzhou	Pekin
Source: Seafood Guide
450-500	166	188	190
560-670	170	188	190
680-790	174	196	196
800-900	184	196	212
900-1100	200	220	238
1100-1300	214	220	238
1300-1800	216	220	238

"Loosey-goosey"

Canada's home country rules are well-defined and easy to understand, suggested Irvine of the Lobster Council. According to a website run by the federal government, the country of origin of a product is the country where it was born and raised.

In the case of "fish, shellfish or other marine species caught from the sea", this is the origin of "vessels registered or registered in that country and flying its flag".

The Canadian Food Inspection Agency and the Canada Border Services Agency are both capable of catching transhipments, a form of customs fraud, sources said. Chinese import authorities.

But such a focus on North American lobster is new to everyone involved, said UndercurrentCanadian source. There used to be few "economic consequences" to identify a lobster as originating in Canada or the United States, so compliance with the requirements was "tricky", he said.

"We have all made assumptions about what is lawful and what is not, but what we all thought to be legal may not be correct," said the leader.

Similarly, although there are many examples of Asian companies trying to hide the real countries of origin of products to try to bring them into the United States, it is difficult to find examples.

UndercurrentThe US source believes that Canadian authorities have not yet taken control of the lobster situation.

"What's the incentive to stop him?", He said. "It creates more tax revenues, more jobs, etc. Fees are a Christmas present for Canadians."

Adams Lee, a longtime attorney at the major international firm Harris Bricken, in an email to Undercurrent, warned that identifying American lobster as a Canadian product in exports to China is an example of customs fraud, but added that different law enforcement agencies may not have much 'Warning.

"Theoretically, such a system could be the subject of investigation / prosecution by the customs authorities of the United States, Canada and China, since they all contain provisions allowing them to prevent customs fraud, "Lee said. "However, customs and border protection authorities (at least the United States and Canada) usually give priority to protecting the border against illegal immigrants, and efforts to combat illegal trade generally have less of an impact. resources.

US customs and border protection have taken anti-dumping and anti-dumping measures, bringing criminal charges against US importers involved in misinformation about honey, hangers, ink cartridges and imported furniture.

The Canada Border Services Agency (CBSA) can also and has investigated cases of customs fraud involving misclassified imports and evasion of rights, he added. But the CBSA has not been as active as the US agency.

CBP and the CBSA both maintain telephone / email numbers to which anyone can send information to report allegations of customs fraud. Allegations may come from inside the company (for example, a former employee who reports wrongdoing in a company) or from competitors (a company reports information about wrongdoing by a competitor based on customer's explanations). And these allegations of whistleblowing could result in a government investigation of the party who provided information receiving a portion of any settlement as a reward to whistleblowers.

The Canadian source identified four groups that would be affected by the transshipment and that could be motivated by action if it were detected: the Chinese government would not get the tariff; Chinese consumers thinking about paying for Canadian lobster; the Canadian lobster industry whose brand is damaged; and Canadian live lobster exporters who respect the rules.

"Any company that would follow the rules would be extremely shocking to the extent that another company sends American lobsters to mainland China without paying the tariff," said the Canadian executive.

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