Definition, investigation and trade effects of antidumping


Seminar Paper, 2001
25 Pages

Free online reading

Contents

1. Introduction

2.What is dumping?
2.1 Definition of dumping
2.2 Forms of dumping
2.3 Antidumping in the GATT
2.4 The history of the use of Antidumping
2.5 Recent developments in the case of antidumping measures
2.6 Countervailing duty vs. antidumping duty

3 Antidumping investigation in the United States

4 Trade/Welfare effects of dumping and antidumping actions
4.1 Effects for the domestic economy
4.2 Named versus non-named countries
4.2.1 Import of named countries
4.2.2 Imports of non-named countries
4.2.3 Overall imports
4.3 Net country effect of U.S. antidumping actions

5. The effect of antidumping actions on foreign direct investment

6. Conclusion

1. Introduction

During the last decades antidumping has been become one of the most, if not the most, controversial practices in international trade. It emerged as the most widespread impediment of trade. Whereas other trade barriers, like quotas, tariffs and voluntary export restraints have been brought under greater GATT/WTO discipline, the widespread of antidumping actions have increased rapidly. There is a large gap between the interest of economists and politicians, who mainly support trade restriction in order to protect the domestic economy and, of course, what the political economy taught us: to be reelected. On the other side are economists and trade reformers who support the minimizing of barriers in international trade. According to the importance of antidumping to international trade and the recent controversial discussion about antidumping at the meeting of the WTO in Doha, Qatar, this paper addresses same significant issues about the use of antidumping measures. First the important and many-sided trade effects that occur when dumping take place and the reaction of the dumped product importing country, namely antidumping actions. The process of the antidumping investigation and the process of filing a petition are discussed as well as the influence of antidumping on foreign direct investment in the United States.

2 What is dumping?

2.1 Definition of dumping

In general, dumping is the situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. So the comparison of the prices in the two markets is the simplest way to identify dumping. However, usually the case is more complex than this simple situation. In most of the situations complex analytical steps are necessary to determine the appropriate price in the market of the exporting country (known as the "normal value") and the appropriate price in the market of the importing country (known as the "export price"). Thus, in1922, Jacob Viner defined dumping as

“price discrimination between national markets”[1]. Other writers define dumping as

followed: “Loosely defined, dumping occurs when similar products are sold by a firm in an export market for less than what is charged in the home market. Alternatively it may occur if the export price of the product is less than total average costs or marginal costs”[2].

2.2 Forms of dumping

Dumping takes place under different circumstances. The well-known economist Jacob Viner distinguishes between three types of dumping situations. First of all there is sporadic dumping. Here the motivation to sell goods below cost for the short-run is to get rid of surplus shock. Sporadic dumping results only in damage to either the importing country or exporting country. Secondly, there is intermittent or short-run dumping. In this not continuous case the motivation is to enter the market, retain the market share or drive away the competitors. The third form of dumping is continuous or long run dumping, which is driven by the intent to reach or maintain a large-scale economies-production.

The only case in which antidumping authority may protect domestic consumers is predatory dumping. Here the foreign company tries to drive away the domestic competitors to establish a monopoly and hence to increase the price[3]. “Predatory Pricing refers to the use of short-run price cutting in an effort to exclude rivals on a basis other than efficiency in order to gain or protect market power. …Predatory pricing, however, is a complex form of anticompetitive conduct. It requires the perpetrator to incur substantial losses or at least to forego present profits in the hope that those losses can be more than recouped in the future through the exercise of market power. Thus, market conditions play a key role in determining whether price predation is a feasible tactic for a firm to employ. The predator must have a very substantial share of the market or at least the capacity to acquire such a share”[4].

2.3 Antidumping in the GATT

The Article VI of the General Agreement on Tariffs and Trade (GATT) 1994 was implemented to set anti-dumping measures for the members of the World Trade Organization (WTO). After a successful investigation and determination by a member, that an imported good is dumped by a foreign firm and that this good is causing material injury to a domestic industry producing the like-product (product that is object of antidumping investigation) , this anti-dumping measures can be applied by that member.

The above-mentioned requirements, which must be met in order to impose an antidumping measure, are set by Article VI of the GATT.

2.4 The history of the use of Antidumping

The history of Antidumping begins with the GATT agreement of 1947. Dumping was defined as the practice whereby the “products of one country are introduced into the commerce of another country less than the normal value of the products” and it was only permitted to levy dumping duties in cases of “material injury” to a domestic industry. This determination of dumping leaded to high standard for permissions to levy a dumping duty. During the 1950s there was not even one Antidumping case of levying duty in the United States and in the 1960s only 10% of U.S. antidumping cases resulted in duties. Actually there was just a little antidumping protection. Indeed, less than 5 percent of antidumping cases resulted in duties until the 1970s. Thus, the trade impact of antidumping was not worth mentioning until this time. At the Tokyo Round in1979 many amendments for a better dumping protection were contained. Most important was the definition of “less than fair value” sales, because it included not only price discrimination, but also selling below costs. After this definition cost-based antidumping petition became the “dominant feature of United States antidumping law”[5] and in the rest of the world. Table 1 in the appendix presents a brief summary of antidumping actions by reporting countries. More than 1500 cases were filed worldwide during the 1980s; twice the cases compared with in the 1970s. In the 1980s nearly 99 percent of all filings were accounted by Australia, the European Union, Canada and the United States. But with the time gone by more and more cases were filed by developing countries, which lead to more than half of all antidumping complaints in the mid-1990s. Now the United States and the European Union were the subject of more dumping complaints by developing countries than any other countries. The sharply increase of antidumping complaints can be traced back to several reasons. First of all the increasingly weak antidumping standards, that made the determination of a dumping case easier than before. Secondly, the further liberalization in trade, which increases the trade volume and, hence, the complaints.

2.5 Recent developments in the case of antidumping measures

At the recent meeting of the WTO in Doha in November, there was not really consensus in the case of antidumping actions. One important challenge of the negotiator of the United States, Zoellick, was to protect the domestic industry from the ravages of the global marketplace by maintaining the agreement of antidumping measures. But unfortunately most of the developing countries are not satisfied with the current situation of antidumping measures, because the developed countries are using these “weapon against trade” quite often and levying mostly disproportionably high duties. The negotiations are not finished yet and it will be interesting to see how the developing countries are acting against the developed countries. A statement by Max Baucus, Senate Finance Committee Chairman underlines the explosive effect of this topic: "Why would we agree to this? What do we gain?"

2.6 Countervailing duty vs. antidumping duty

Antidumping measures and countervailing duties are related closely, but there are also fundamental differences. These two issues are mostly handled in a single law by many countries, because of its similarity. In both cases the result is an offsetting import tax; a countervailing duty in the case of a subsidy and an antidumping duty in the case of dumping. Both duties are levied on a special product from a certain country that breaks the GATT principles, so the levying of both duties is a protection of the domestic industry. But there are also the already mentioned differences. In the case of subsidies a government is paying a certain amount of money to the exporting company, whereas in the case of dumping the foreign company is acting directly. Because of the fact that the WTO is an organization of countries that cannot deal with companies directly, there is only a special agreement of antidumping measures.

[...]


[1] Viner, Jacob “Dumping: A Problem in International Trade” (Chicago, 1923)

[2] Hoekman, Bernard M. and Michael P. Leidy, “Dumping, Antidumping and Emergency Protection”

[3] Staiger, Robert and Wolak, Frank “The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly”, NBER Working Paper Series, Working Paper 3254 (February 1990).

[4] OECD, Predatory Pricing (Paris, 1989).

[5] Horlick, Gary “The Unites States Antidumping System” 1989 (p.136)

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Details

Title
Definition, investigation and trade effects of antidumping
College
University of Lincoln
Author
Year
2001
Pages
25
Catalog Number
V105586
File size
570 KB
Language
English
Tags
Antidumping
Quote paper
Juergen Hesse (Author), 2001, Definition, investigation and trade effects of antidumping, Munich, GRIN Verlag, https://www.grin.com/document/105586

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