CASE STUDY

Indonesia's Shrimp Exports: Meeting the Challenge of Quality Standards

Among Indonesia's fishery products, shrimps contribute the largest foreign exchange earnings. The total value of shrimp exports in 2002, was US$840 million, accounting for about 50% of the total value of fishery exports. However, shrimp exports have been declining during 20003. In 2000, Indonesia exported 144,035 tons (US$1,003 million) of shrimp, but this declined to 127, 334 tons in 2001 and 122,050 tons in 2002, or around US$940 million and US$840 million, respectively (Central Bureau of Statistics 2003). As an archipelagic country, Indonesia has 17,508 islands and 81,000 km of coastline which provide an excellent resource for brackish-water shrimp farming to support the growth of shrimp exports.

The shrimp business in Indonesia is now under serious challenge, both internally and externally. Internally, the shrimp business faces many problems, especially in the production (farming) phase, such as disease infestation, shortage of shrimp fry, shrimp feed and medicine, regional planning and infrastructure, and farmer empowerment. Externally, the current flooding of relatively 'cheap' imported shrimp into Indonesia has had a detrimental effect on the profitability of businesses. Some of them went bankrupt and a large number have been in financial difficulties. Depressed world prices had begun in 2002, when the US government enacted an anti-dumping measure against China, Thailand, Vietnam, Brazil and Ecuador. This low price will potentially reduce incentives for doing business, reduce the quality of Indonesian shrimp and eventually reduce Indonesia's competitiveness in the world market.

Considering the Indonesian production system, efforts to meet this quality standard would likely be the major constraint and challenge for Indonesia's shrimp production in the near future. It was reported that brackish-water shrimp ponds in Indonesia amounted to 380,000 hectares, 80% of which is cultivated traditionally. Shrimp production using this system is vulnerable to virus infestation, and the use of antibiotics such as chloramphenicol is common.

The US Shrimp Trade Action Committee, an ad hoc committee of the Southern Shrimps Association (SSA), sent an anti-dumping petition to the Department of Commerce and the International Trade Commission dated 31 December 2003 (Bisnis Indonesia, 2 January 2004). It sought anti-dumping action against six shrimp exporting countries, namely Brazil, China, Ecuador, India, Thailand and Vietnam, claiming that these six countries practised unfair trading which harmed the US shrimp grower. Indonesia was, fortunately, not included in this antidumping action.

Indonesia's shrimp business has been facing serious constraints and challenges, only some of which have been partially tackled. The most critical challenges are related to quality standards, including freedom from antibiotic contamination, imposed by developed country importers, with which the Indonesian shrimp growers lack the capacity to comply. Other problems are the low productivity and high cost of production of domestic shrimps. This last problem creates difficulties in managing trade policy against cheap imported shrimps from major shrimp exporters such as China, Thailand and Vietnam.

In response to the EU quality standards, the Indonesian government has issued a number of regulations including that of banning cloramphenicol use. In 2001 the government reiterated a chloramphenicol banning regulation that had been enacted in 1982, and established a special task force, at both the regional and national levels, to enforce the ban. Regular monitoring is carried out in all major shrimp producing regions. This action has been a success, as shown by the fact that only 8.6% out of a total sample of 10, 115 from seven provinces was found to contain cloramphenicol.

The Indonesian government has recently tightened the conditions of issuance of import quality and health certificates in order to avoid the possibility of shrimp transshipment to the United States via Singapore. This initiative is a response to the increasing trend of transshipment using Indonesia's export certificates, and has been found to be very effective in controlling transshipments and in avoiding Indonesia being involved in possible circumventions through transshipments. In addition to imposing a temporary import ban, Indonesia has also prepared an instrument for the management of the importation of shrimps. In order to stabilize domestic prices and to support domestic shrimp growers, shrimp importers are obliged to absorb domestically produced shrimps according to an import-absorption ratio. This instrument is expected to be effective in guaranteeing that farmers receive reasonable farm-gate prices for their shrimps during the peak harvest period.

Any barrier to trade means an increasing cost for trading. For a developing country exporter like Indonesia, the quality standard imposed strictly by importing countries is difficult and costly to meet. Producing salmonella-free as well as chloramphenicol-free shrimps appears to be difficult, if not impossible, to attain at present. A more sensible and fairer way is for developed countries (such as Japan, the United States and EU countries) to help developing country exporters to comply with such quality standards. Trade facilitations, such as technical and financial assistance, can be set either bilaterally or multilaterally though WTO fora.

Last but not least, the government must provide a better environment for doing business as well as promoting new investment in the shrimp business. Among others things are improving relevant public infrastructures, promoting consistent regulations and laws and their enforcement, and political stability. In the case of the shrimp business, the government must increase its research and development budget to promote disease-resistant varieties and productivity-enhancing technologies. All these are considered as non trade-distorting domestic

supports that is, 'green box' supports as defined by the WTO Agreement on Agriculture.

(Adapted from: https://www.wto.org/english/res_e/booksp_e/casestudies_e/case18_e.htm)

Questions:

1. What are the objectives of WTO? Based on the case study above, which objective(s) is/are applicable to Indonesia? (15 marks)
2. What are the achievements of WTO in Indonesia? How about trade disputes/contraints/challenges related to the shrimp industry in Indonesia? (10 marks)