Antidumping Essay Research Paper While antidumping doesn

Antidumping Essay, Research Paper

While antidumping doesn’t get a lot of press, it is certainly one of the biggest

issues that the WTO is dealing with today. During the recent WTO Ministerial

Conference in Seattle, much was mage about protesters who were demanding higher

environmental standards or international labor standards. Little was mentioned

about antidumping. However, In the midst of the many demonstrators there were

steel workers and members of other union organizations like the AFL-CIO who were

there to defend US antidumping laws. Antidumping regulation was a major issue

for Seattle as it is for the organization of the WTO in general. From the

inception of the WTO, there has been controversy over antidumping laws from

diverse groups. Some countries feel that other countries place antidumping

measures on products that have not really been dumped. Since the 1994 Uruguay

Round, many developing nations feel that they have been unfairly targeted for

antidumping penalties by the industrialized nations. Countries such as Japan and

South Korea have also called for reforms. The US, being the largest economy in

the world tends to be on the receiving end of much of this controversy about its

national antidumping laws. Adding to the confusion, not many cases brought to

the WTO panels have been settled as of yet. There are many complaints about

antidumping procedures, and some economic graphs can be used to demonstrate

these complaints about antidumping and the WTO’s antidumping laws. In 1995, the

World Trade Organization was born out of the Uruguay Round of trade talks. The

WTO has upwards of 123 member countries and new members are always in the

process of joining. The WTO is an organization that basically a more formal

extension of the GATT (General Agreement on Tariffs and Trade) which had existed

for around 50 years. However, the WTO agreements also cover trade issues not in

the GATT agreement, such as trade in services and intellectual property rights.

Also, WTO member countries must agree to all the obligations of its agreements.

The WTO also features binding panel resolutions. Countries must accept the panel

rulings; under GATT that was not necessarily true. Still, WTO embodies the same

spirit as GATT. It favors trade liberalization and globalization over trade

barriers. In particular, one main objective of the WTO is to reduce trade

restrictions, and one of the first agreements it reached was a general reduction

in tariffs. (Schott, 1). For all of the WTO’s promise to tear down of trade

barriers, there is some concern that antidumping procedures are a covert way of

hanging on to some of these practices. Since the WTO has come into existence,

antidumping cases have flourished. Between January 1994 and July 1995 there were

238 new provisional or actual antidumping measures were enforced by 19 WTO

members (Schott, 221). Most came from countries such as the United States,

Australia, Canada and the countries of the European Union. Under the WTO

Antidumping Agreement, dumping is generally defined as selling a product in an

export market at a lower price than the product is sold in the exporter’s home

country. It is also associated with selling the product at less than the

marginal cost of production. This action is often called predatory pricing. The

dumping company keeps its price so low that it drives its competition out of

business so it gains monopoly power after a time. A company is able to do this

in the long run because after a time it only has to cover its average variable

cost, once it covers its overhead expenses. Antidumping is the practice where

governments place tariffs or quotas or duties on imported goods that they

believe are being dumping in their in order to prevent their domestic industries

from collapsing due to the importer’s unfair pricing. Examples of goods that

often affected by antidumping measures are steel, computer screens and

supercomputers, and agriculture. If in fact a domestic industry is indeed having

competing products being dumped in its country, it is possible that it could be

injured. The lower price imports could decrease the amount of domestic products

purchased, and domestic companies may not be able to lower their prices in order

to compete with these imports. Thus, antidumping procedures may be prudent in

these cases. Antidumping can be a necessary measure for countries to enforce in

certain cases. However, this paper focuses with the problems of antidumping. One

particular issue is whether or not countries are using the valid methods (by the

WTO’s standards) to determine the presence of antidumping. Since this is such a

controversial issue, this paper often examines the results if there are

antidumping measures placed on products that are not actually being dumped or

that do not severely harm domestic industries. It should be absolutely noted

that this is not all there is to say about antidumping. Rather, it describes

some of the arguments against antidumping. The WTO has in place a very long and

complicated set of agreements on antidumping. This agreement contains some new

additions to the GATT’s antidumping rules. The WTO contains more specific

procedures about how antidumping investigations can be started and how they can

be carried out. There are also more specific rules for calculating the dumping

margin and determining injury. There is a new sunset clause about how long

antidumping duties can be in place. Plus, with the new panel dispute settlement

mechanism in the WTO, new rules had to be formed to accommodate it(Consultations

with Canadians). Some of the key pieces of the WTO agreement can be summed up as

follows. First, an antidumping investigation cannot be started unless the

companies that start the investigation make up more than 25 percent of total

domestic production. The dumping margin is the difference between the

"normal price" (or the fair price, usually comparable to the foreign

company’s home price) and the alleged dumped price. An investigation is not

valid if the margin of dumping is determined to be less than 2 percent of export

price. The amount of dumped goods from a specific country cannot be less than 3

percent of the total imports, unless countries that make up than 3 percent

combined account for more than 7 percent of imports.(Consultations with

Canadians). Currency fluctuations are also be considered when calculating the

true prices. A country must also prove that the dumping injures or threatens to

injure domestic industries. The term injure has a very specific meaning. .

Injury means that there is an unfavorable effect on many different aspects of

the industry, including (actual and potential declines in sales, profits,

output, market share, productivity, return on investments, and capital

utilization. (K & S Law). There is also a new rule called the "sunset

rule." This rule states that antidumping measures should be dropped after

five years once they have been implemented. In order to reapply the antidumping

measures a new investigation should be opened. As a result of the WTO’s very

complex rules on antidumping, there is some confusion as to when antidumping

measures are justified. There have been many questions about whether countries

are using the right methods in calculating the margin of dumping and price

differences. There is also suggestion that these rules need to be even more

specific. It is very difficult in many cases to actually access whether on not a

company is actually violating dumping laws. That company may simply have lower

cost of production than its foreign counterparts. Even if the company sells its

product at a lower price abroad than its does in its home market, it may not

necessary be dumping. Factors such as differences in the cost of advertising and

selling conditions at home may lead to the discrepancy. Also a wide variety of

complex domestic taxes may also cause the domestic price to be higher than the

foreign price. As is the case in many developing nations, skewed market

operations and corruption among buyers in the home country may also lead to an

artificial inflation of the domestic price( Raghavan). In these cases, one can

not simply just compare the face value of the prices in the two countries. The

WTO does mandate that these factors be taken into consideration when determining

whether or not dumping is occurring. However, many developing nations and some

industrialized nations believe that the industrialized nations do not carry out

this obligation in order to gain or keep the political favor of specific groups

of voters. Legal experts in these first world nations unfairly pad the cases in

favor of their domestic producers. Also many countries, not just the developing

nations, contend that the appropriate prices are not be used by [other]

developed nations, especially by the US. According to some Japanese analysts,

the US only uses a few selective (unrepresentative) price statistics of a few

companies in determining the importers’ domestic price. Then, they use this

analysis to enact antidumping measures against firms from that country [Japan]

in related industries. (Dumler) In possible cases of predatory dumping, other

key facts to be looked in to relate to the structure of the industry worldwide

and the number of firms competing in national markets., economist Christopher

Dumler contends. Most antidumping cases involve products and sectors with a

considerable number of sellers, and therefore successful predatory pricing

strategy is unlikely (Dumler). The steel industry has been a very hot topic in

terms of antidumping measures. Historically, the steel industry has been among

the major players in many of the US antidumping litigation. In the past few

years, steel imports from Russia, Brazil, Japan, and a sprinkling of developing

countries have increased by dramatic amounts- by more than 30 percent by late

1998. The US Congress quickly opened up dumping investigations. In March 1999,

the US House voted to allow quotas and tariffs on steel imports from various

countries. In one case, the Congress to impose duties of over 100 percent on

Japanese steel. The US government is also investigating India, Korea, Indonesia,

and the Czech Republic and is also threatening antidumping measures. If the

Japanese claim that they are simply more efficient is true, the losses produced

by the US slapping on tariffs can be shown in the Ricardian trade model. By

having the US produce more of a good that it does not have a comparative

advantage in producing, it and Japan in general will less well-off. Graph 1 and

2 demonstrate this, using steel and wheat as the two commodities. Japan has the

comparative advantage in producing steel; the US has the comparative in wheat.

If there is no trade, both countries ppf would be the solid lines in their

respective graphs and they would produce at point A on indifference curve y0.

But if they specialized in the products they have the comparative advantage in,

their ppf’s will shift outward to the dotted lines. They will produce at point B

and be on a higher indifference curve, y1. Since they are not completely

specialized they cannot obtain the indifference curve y1; they will be on a

curve in between the two. The tariffs and quotas would actually hurt some US

industries; the ones that consume steel. Since the US has mainly considered

placing tariffs or countervailing duties on steel imports (which work much in

the same way that tariffs do), Graph 3 shows the losses and gains for the US if

it slaps a tariff on steel. Pw is the world price and domestic (US) price

without the tariff. Once the US places a tariff on steel, the domestic price

changes to Pd. Pf is the price of steel in the trading partners market so that

the market clears. As the graph indicates, area a is the producer surplus and

area c and area e are gained by the government tariff revenue. But areas a, b,

c, and d are the consumer surplus losses. While one might not think a lot about

the consumer surplus loss, it can have a grave impact on the US economy. The

automobile industry, construction industries, and the food packaging industries

are all other large industries that consume a fair amount of steel. Thus, they

would suffer from the increase in price. Griswold in his article "Industry

Sets Steel Trap for US Economy" feels that domestic car buyers would be

hurt by this increase in steel prices. Also, he believes that an increase in

steel prices would make it tougher for huge industries such as General Motors

and Caterpillar to compete in world markets. Plus, as the graph indicates, the

US as whole incurs a net loss of b and d. This loss may or may not be made up

with the net gain of e, the terms of trade gain. While tariffs might benefit the

steel industry, they hurt steel consuming industries. They may or may not hurt

the US in general. Although most developing countries believe that antidumping

can be legitimate in many cases and would like to use them more for their

benefit, they have been vocal about their beliefs that developed countries

unfairly are targeting them for antidumping measures. Speaking of behalf of

developing countries, trade representatives from Brazil stated in a WTO General

Council meeting: "In the period 1987-1997, developing countries were

responsible for only 31% of investigations opened. At the same time, they were

affected by 62% of the investigations. This situation is even less acceptable

given the concentration of measures in some specific sectors where developing

countries have developed a competitive industry. One major trading partner [a

reference to the USA], for example, in the last ten years, has opened 173

investigations in the steel sector, nearly half of all investigations opened by

this Member"( Raghavan ). Thus, developing countries feel that developed

countries are trying to keep the third world countries out of their markets.

This could result in a stunt of economic growth for these developing countries,

as they are unable to develop secure and stable long term industries. "The

imposition or even the threat of imposition of AD duties has a serious adverse

effect on the functioning of small and medium size firms, resulting in a fall in

production, heavy unemployment and declines in incomes and increases in poverty

levels."( Raghavan). To start the examination of a third world country’s

argument, Graph 4 shows the definite losses that a small trading partner suffers

(like India or another developing nation) when an tariff is slapped on its

exports. Steel is the specific example in this case, though it need not be. Pw

is the world price for steel; Pf is India’s domestic price as a result of the

tariff. The only gain for India is the consumer surplus gain of area 1. But that

gain is more than negated with the producer surplus loss of areas 1,2,3, and 4.

The net loss is 2,3, and 4. Thus, India overall is definitely harmed. The

producer surplus loss is particularly troublesome, since many of these

industries are just starting out. The local economy is more dependent upon their

success. The Offer curves graph shows one major result of a large country

slapping a tariff on a small trading partner (in the specific market)- a decline

in the terms of trade for the small country. In graph 5, the US imports steel

from India and exports food. Line A is the original international price line

with equilibrium achieved at point A. When the US slaps a tariff on steel, its

Offer curve shifts backward to the Offer curve with tariff. Line B in now the

new price line with equilibrium at point B. The relative price pf/ps with a

tariff is greater than pf/ps without the tariff. Thus, the terms of trade for

India have declined for India. And as Ricardian theory shows, a long term

decline in the terms of trade with result in a long term decline in real wages.

This could mean the developing countries could get poorer and poorer. The

specific factor’s model (graph 6) shows how this decline in the terms of trade

leads to a decrease in the wages of all Indian workers. Labor is the mobile

factor in this example. Capital is the specific factor for steel. The original

wage rate is w0. But due to the decrease in the relative price in steel, the

value of the marginal product of labor in the steel decreases to the dotted

line. Thus the wage rate drops from W0 to W1. Less labor is used in the steel

industry, resulting in less production. Graph 7 shows that both the returns to

labor and capital have decreased. Graph 8 gives a more general picture. In this

specific factor’s graph, capital is the mobile factor between industrialized

nations and third world countries. As the third world countries relative prices

decreases, there value of marginal product decreases (or is not as high as it

would have been) as shown by a shift to the left to the dotted line. This

movement shows that the developing countries are (relatively) losing capital to

the industrialized nations. This leads right into graph 9. If the industrialized

nations capital to labor ratio is at k** as it would be in this possible case

and the developing nations capital to labor ratio is a k, there can be no

overlap in factor prices. This would mean that wages and rents in the developing

nations could never be the same as in the industrialized world. All these graphs

show that there is real concern for third world nations if there is persistent

antidumping measures taken against them by industrialized nations. The WTO has

stated that in cases involving developing countries special attention should be

paid to their economic situations when countries consider imposing antidumping

provisions: "[ The WTO's agreement]also calls for ‘constructive remedies’

to be explored."(Raghavan) However, it is hard to say if this has ever been

carried out. India feels that more specific rules should be made for developing

nations: "Article 5.8 of the [WTO] AD agreement provides that the volume of

"dumped" imports shall be normally regarded as negligible if the

dumped imports from a country are less than 3%, unless countries individually

accounting for less than 3% collectively account for more than 7%. In view of

the liberalization of global trade, and of more and more developing countries

entering untapped markets for them, these percentages should be increased to 7%

and 15% respectively."( Raghavan). For third world exporters, they have

many handicaps when it comes to fighting anti-dumping cases. One, there is utter

paucity of exact information on anti-dumping laws, procedures as per WTO and as

practiced by various countries. Two, there are very few legal experts and

advisors in this field who have mastered not only the most complicated laws but

even the procedures, and also have understood the various complicated technical

aspects of WTO and the anti-dumping laws, international trade. Antidumping

measures hit small and medium size firms very hard, because they often don’t

have the resources to defend themselves. It is also too expense for firms to pay

the astronomical sum of money needed to defend one’s company in the complicated

antidumping investigations.-estimated by the Indians to be around 100,000

dollars per investigation. One US legal form was 400 pages long. (Sule). The

recent trade round in Seattle has done little to change any antidumping laws. No

amount of arm-twisting could get the US to agree to negotiate the WTO’s

antidumping laws. With the substantial political pressure from those in the

steel industry and other labor unions, 228 U.S. members of the House and Senate

have signed a document insisting that Clinton and U.S. Trade Representative

Charlene Barshefsky defend existing anti-dumping laws at the WTO meeting in

Seattle. The legislation has enough support to pass in the U.S. House of

Representatives. Thus, US negotiators flat out refused to discuss any changes to

the WTO current laws on antidumping. However, many countries such as Japan and

some developing nations tried to tie any discussions of trade involving the

Internet, a very important topic for the US, to discussions involving the

antidumping laws. The US still refused. The language from some in the Us

government was very strong regarding the demands for talks about the antidumping

laws, especially with regards to Japan . U.S. Under Secretary of Commerce for

International Trade David Aaron told the WTO " If [Japanese and others]

don’t back down, then they’ll? sabotage the Seattle round? We’re just not

going to do [negotiate on antidumping]. We can’t do it. We won’t do

it"(Reuters). Chile, representing a small developing country, issued their

statement about the problem with antidumping laws, a view similar to that of

Japan’s: "The aim is to remedy a situation in which anti-dumping measures

have in most cases become a projectionist instrument that has nothing to do with

anti-competitive behavior"( Schwartz). Among other issues the antidumping

controversy may have helped in the futility of the conference and Seattle.

Although it was reported that some nations had put antidumping on the

preliminary agenda for the next round of trade talks, of course, no finalized

agenda was ever approved. So, to date nothing has been done to change or clarify

the WTO’s antidumping laws. Moreover there have been few cases on antidumping

that the WTO has ruled upon. Japan has filed complaints about antidumping

measures placed on its cameras and supercomputers, but the WTO has yet to settle

the disputes. Also, South Korea recently filed a complaint with the WTO about Us

antidumping tariffs against its flat computer screens, invoking the sunset rule

that more than five years had elapsed since the US put on the restrictions. The

WTO has yet to rule in that case either. Overall, it seems as if the WTO

antidumping agreements need some refinement. There is still much confusion as to

whether countries are actually using its standards or not in their dumping

investigations. There are many theoretical problems with some antidumping

procedures. Allegations of unfair investigations abound. The WTO’s Antidumping

Agreement was made to be very complex to help to deal with these problems, it

may be too opaque to be able to determine the validity of some antidumping

measures. As the main part of this paper explores, the consequences of

unnecessary or mistaken antidumping measures can be grave for both the exporting

and importing countries. Tariffs and countervailing duties can hurt the domestic

countries consumers and can have large negative effects on the small trading

partners. This is especially problematic for developing countries that need

access to industrialized markets to ensure they can obtain a basis for long-term

economic stability and growth and clime out of poverty. The industrialized

nations should want this to occur so they don’t have to perpetually give

handouts to these developing nations. Of course, in order give a lengthy

description of one aspect that is not necessarily popular in the United States

of antidumping , this paper restricted its examination to only half of the

antidumping story; there are many arguments for the antidumping laws that are

currently on the books. No one is suggesting that the US or any other

industrialized nation let its industries be unfairly put out of business, if

that is truly the case at hand. Still, as the Seattle Round demonstrates, the

WTO’s antidumping laws seem to have satisfied to few countries. Given the spirit

of its trade barrier reduction goals, the WTO should make sure it gets its

antidumping rules right.

"Consultations on FTAA and WTO Negotiations." Consultations with

Canadians. 4 Oct. 99

. Dumler, Christopher M. "Anti-dumping Laws Trash Supercomputer

Competition." Cato Briefing Papers. 14 Oct. 1997. < http://www.cato.org/pubs/briefs/bp-032.html>.

Griswold, Daniel T. "Industry Sets Steel Trap for U.S. Economy." Cato

Center for Trade Policy Studies Articles. 23 October 1998.< http://www.freetrade.org/pubs/articles/dg-

steel.html>. Hindley, Brian and Patrick A. Messerlin. 29 Nov. 1999. <

http://www.aei.org/bs/bs7306.htm>. "Japan Wants New Trade Talk."

Reuters. 29 Oct. 1999. < http://cnnfn.com/1999/11/29/worldbiz/wires/japan_wto_wg/>.

K & S Law. "Combating Injurious Imports." 29 Nov. 1999.

. Raghavan, Chakravarthi. "Call for Revision of Anti-dumping, Subsidy

Rules. " Third World Network. < http://www.southside.org.sg/souths/twn/title/dump-cn.htm>.