Just Chinese shrimp or a trade loophole?

WASHINGTON -- Dusted shrimp, a specialty item that takes its name from a light flour coating that clings to the shrimp, were a blip on import records a few years ago. But by last year, imports of dusted shrimp -- mostly from China -- exploded to an estimated 26 million pounds.

Why?

Critics say Chinese exporters are exploiting an inadvertent but lucrative loophole, highlighting just how difficult it could be to coax the Chinese to play by US rules when it comes to improving food safety. Dusting shrimp transforms it into a product that is not subject to punitive tariffs -- lowering prices for purchasers and maintaining the Chinese suppliers' tight grip on the US market. And, unlike other frozen shrimp that is subject to high duties, the dusted shrimp, which restaurants often batter or bread before frying, does not have to be labeled as a Chinese import.

Domestic businesses say they have tried to interest federal authorities in cracking down on actions that erode their market share. They got scant attention until a food safety crisis that began with tainted pet food and grew to encompass toxic toothpaste and suspect seafood -- all imported from China .

Yesterday, congressional watchdogs began the first in the latest round of hearings on food safety, amid trade skirmishes between the two countries. The United States continues to block Chinese shipments of five types of seafood until testing confirms they are not tainted with unapproved antibiotics and cancer-causing chemicals. Chinese officials reacted by suspending some US exports of chicken feet and pigs' ears and by defending its country's food safety record.

The sudden rise in dusted shrimp imported from China has its roots in a different trade dispute. Domestic fishermen and companies that sell America's most popular seafood alleged they were harmed by unfair competition from countries that "dumped" inexpensive farm-raised shrimp on the US market.

In 2005, federal authorities began collecting punitive duties on a broad variety of frozen shrimp from a handful of countries, including China . Depending on the type of shrimp, the duties tacked on $27.89 to $112.81 to the price that importers would pay for a $100 shipment. In fiscal year 2006, which just ended, the punitive duties imposed on Chinese shrimp alone amounted to $1.36 billion . Businesses that market dusted shrimp, however, successfully argued that since breaded shrimp were exempt , dusted should be , too. After the new duties took hold, Chinese exports of dusted shrimp exploded.

Dusted shrimp shipments soared to 5.2 million pounds in 2005 from 71,000 pounds in 2003 . Last year, US buyers imported at least 26.2 million pounds of dusted shrimp, almost exclusively from Chinese exporters, according to the Southern Shrimp Alliance , an organization that represents eight states that are attempting to maintain the commercial viability of domestic shrimping.

"It's no secret," the May 2007 issue of Seafood Business magazine said of suppliers cooking and converting shrimp into forms that sidestep high duties.

"Pre-tariffs, we bought large volumes of peeled shrimp," Mark Leslie , of Danvers -based Fishery Products International , told the magazine. "Now we buy large volumes of pre-dusted butterfly and small peel from China. [W]e had to modify our whole process to maintain the supply source, but bring it in without getting hit with tariffs," said Leslie, executive vice president of a processor that handles 30 million pounds of shrimp per year, much of it from Asia.

Leslie did not immediately return calls from the Globe seeking comment.

Long John Silver's Inc. , which bills itself as the world's most popular fast-food seafood chain, obtained its dusted shrimp imports from Eastern Fish Co. , according to legal documents. An Eastern Fish executive confirmed the companies' business relationship, asked for subsequent questions in writing, but did not immediately respond to queries. Long John Silver's did not immediately return calls seeking comment.

Quincy-based AquariaStar Seafood Inc. advertises at least nine sizes of dusted shrimp, imported from China, on its website and had recorded brisk sales -- until last month's federal import alert. A company executive authorized to speak to the media did not immediately return an e-mail seeking comment.

One reason for the uptick in sales: Prices that are lower than frozen shrimp subject to punishing duties.

Pacific Coral Seafood Co. , another supplier, last week offered Chinese dusted shrimp for as little as $2.45 per pound for shrimp that number 41 to 44 per pound. The company says the product has been popular with processors and restaurant chains.

For consumers, such rock-bottom prices can be a good thing, keeping shrimp affordable.

But domestic shrimp fishermen and sellers say their bottom line suffers.

Steve Kerchner , who trawls for shrimp off the South Carolina coast in Poor Boy , a 65-foot vessel, says he loses twice. The law that introduced the tariffs at first allowed duties to be paid directly to the injured industry -- fishermen like Kerchner. Fewer duties paid means less money returned to the fishermen. Secondly, Chinese exporters have a price advantage that makes their shrimp an easier buy.

The $2.45 that Pacific Coral charges for peeled and dusted shrimp is "real close" to Kerchner's wholesale price.

"That goes right to the crux of the problem," said Kerchner, 58 . The shrimp he sells at the dock is "a shell-on shrimp that hasn't been peeled or deveined. The Chinese are offering that same shrimp, ready to defrost and throw in the frying pan. Pricewise, they've got a huge advantage."

Diedtra Henderson can be reached at dhenderson@globe.com.