In December, the U.S. Customs & Border Protection successfully investigated a Chinese garlic dumping case, and ultimately stopped Jinxiang Hejia Co. from shipping the product into the United States.
Through its investigative work, Customs discovered that the firm was not just shipping its own garlic into the United States but that other Chinese producers who did not have duty-free or reduced-duty status and were illegally using the same packing codes for their garlic.
Over a little more than a year, the company shipped more than 60 million pounds of garlic into the United States through New York and Oakland ports.
Bill Christopher, president and chief executive officer of Christopher Ranch in Gilroy, CA, California's largest garlic grower and shipper, said that while most major U.S. retailers no longer purchase Chinese garlic because of their own strict food-safety protocols, illegal shipments still put a huge downward pressure on the f.o.b. price of garlic in the United States.
"Chinese garlic still represents 50 percent of the garlic sold in the United States," Christopher said.
He said very few U.S. companies import Chinese garlic into the country, but it is available on most terminal markets at a price far below U.S. garlic.
For example, on April 16 he said a 30-pound carton of Chinese garlic was selling for about $12-$15 per box, while California garlic was closer to $45 per carton.
The protocol in question that allows Chinese garlic to come into the United States duty free or near duty free is a "new shipper review" provision allowed by the U.S. Department of Commerce.
Jim Provost, president of I Love Produce in Kelton, PA, who buys and sells Chinese garlic, but does not import it directly, said Chinese garlic has a standard 376 percent duty slapped on it if it comes into the United States without any special status.
"That means a $40,000 container has a duty of $150,000 on it," he said.
He said it is impossible to recapture that outlay so virtually no garlic is sold in the United States under a regular duty situation. Instead, Chinese shippers will request a "new shipper review," bring in a load, pay the duty and sell that load at a substantial loss.
The U.S. Department of Commerce reviews the numbers and often grants the shipper a reduced-duty status, which can be reviewed at a later date. Both Christopher and Provost said this reduced-duty status allows the shipper to bring in as much of their own garlic as they can sell until their situation is reviewed a year or more later.
Christopher said in the case of Heija, its "new shipper review" status was granted on the basis of a 7,000-pound shipment that was sold at reasonable prices. Over the next year, the firm shipped an additional 60 million pounds of garlic -- much of which belonged to other shippers who did not have duty-free status - and flooded the market, hurting domestic shippers.
"It would leave China under one shipper's name and arrive in the United States under the name of the duty-free shipper (Heija)," Christopher said. "I think the 'new shipper exemption' is ridiculous. These companies have new shipper review applications lined up so that when one company is hit with duties, that company just disappears and they start shipping under a new name. It's just impossible for Customs to enforce this. They just don't have the manpower."
Provost agrees that the system is flawed though he is not advocating a particular fix. However, he said the 376 percent duty is unreasonable and that all Chinese shippers should not be painted with the same bad brush. He said there are Chinese garlic shippers that are playing by the rules and are equally hurt by the dumping of garlic on the U.S. market.
Provost said after Heija was forced out of the market in December, the garlic market did rebound and sellers of both legitimate Chinese and California garlic were able to reap the benefits.
Additionally, he said, "Customs did a great job of identifying that other producers were using Heija's packing number. I have never seen Customs go after producers in China as they did in this case."
He added that an added advantage to the industry's Produce Traceability Initiative is that it should make the producer of product, such as Chinese garlic, much more transparent and make it more difficult in the future to skirt the laws.
Christopher said Customs used to deserve a "C" or a "D" for their Chinese garlic investigative work, "but now they are doing a much better job. I'd give them a 'B'."
While encouraged by their efforts, he is pessimistic that the flood of garlic will stop any time soon as long as the "new shipper review" process remains intact.
He believes that if a Chinese shipper achieves duty-free status because of the shipping of a handful of loads, they should be able to achieve that status on the same number of loads moving forward.
He said it makes no sense that they can parlay a 7,000-pound review into the shipment of 60 million pounds.