Adverse Effect of Antidumping Laws on Developing Countries


Bachelor Thesis, 2010
53 Pages

Excerpt

Table of Contents

Introduction

International trade

Global economic competition and the liberalization trend of international trade

The unstable economic hegemony of the U.S

Trade Barriers
Tariffs
Tariff on a single commodity with a stable global price
Non-Tariff Barriers
Export Subsidies - Premiums
Restrictions On Imports – Exports // Import Quotas
Voluntary Export Restraints – VER
Local Content Requirements

Unofficial Barriers
Administrative Policies
Embargoes
International Cartels
Dumping Policies

Adoption of Antidumping Measures
Antidumping measures

Dumping – Legal Framework

Existing Law

International Framework

European Community Legislation

Dumping and countervailable subsidies

Dumping and Subsidies

Interest of the Community
Material injury and causal link
Legal framework
Changes to EU legislation in

Conclusion on measures

Reasons for using measures of economic trade policy
Political Reasons Jobs & Business
Support of Economic & Foreign Policy
Consumer Protection
Protection of Human Rights
Economic Reasons
State Revenues
Infant Industry

Shortcomings of GATT

Reform of the Anti-Dumping Code

The Agreement On Technical Barriers To Trade Goods – Environmental Dumping

Conclusions on the Uruguay Round

Development and Developing Countries

Developing Countries and Protectionism

Recent Development – Tariffs and AntiDumping

The theory of Customs Union - Trade Diversion

Trade effects of antidumping protection

“South – South” trade – antidumping

Conclusion

Reference List

Abstract

Antidumping measures and their effects in developing countries should be seen in the framework of international trade and how this trade is currently formulated and functions. Among researchers, there are some that advocate antidumping measures, and they support the view that the distortions of trade due to antidumping are negligible. On product-level trade the effects of antidumping have been established. Recent researches have also proven that antidumping may have adverse effects on aggregate trade but the impact may be different among different sectors. Developing countries such as India and Mexico experienced a dampening effect on their trade due to antidumping, an effect that offsetted the increase that took place in their trade volumes pursuant to trade liberalization.

In the current global economic crisis, many researchers conclude that there is a rise in protectionism and therefore in trade protectionist measures like antidumping. The concern is that due to the nature of the current crisis countries will increase these measures beyond normal. What is striking is that many developing countries use these protectionist measures. The use of these measures is undoubtedly affecting “South – South” trade. “South – South” trade occurs when a developing country imposes protectionist measures against a developing country. These measures have as a primary target China.

Current crisis may lead to the following three channels of escalating protectionism, i.e. retaliation, trade deflection and finally the negative effects that upstream antidumping may cause to downstream users and so downstream industry may demand to cascade protectionism. A major concern, nowadays, is that the economies of G-20 may resort to a kind of 1930s Great Depression protectionism.

Introduction

An unfair trade practice, dumping, occurs when a company sells its products abroad at prices lower than the price of the market in which they are produced, or even below cost (Durling and Prusa 2006:48). These -mainly happens because export firms may have an excess capacity, and want to have a larger market share in a foreign country against domestic products. This practice is internationally considered as a practice of unfair competition[1]. Therefore, anti-dumping measures are imposed. The anti-dumping duty is independent of import duties and functions additionally to the common tariff practices.

Many times, however, it may be the case that anti-dumping measures are imposed on certain products without having them previously dumped. This is more than dangerous. The unfair imposition of anti-dumping measures aims to strengthen the local industry against imported goods, which worsens protectionism worldwide[2].

Recently, U.S. and China were engaged in announcements of additional mutual anti-dumping measures. Within a very short time, U.S. imposed high temporary tariffs on Chinese aluminium products and steel as well as to some types of paper. China responded by imposing tough antidumping tariffs on U.S. imports of chicken and nylon in retaliation (World Bank 2009:120). In general, the confirmation of the existence of this illegal practice is extremely difficult and requires extensive timely research. Furthermore, it should also be investigated whether the particular industry has been harmed.

In the present study, the framework of international trade and the various measures such as tariffs and quotas will be presented to understand better the international economic environment. Dumping and antidumping measures will be examined both on the financial side but also on the legal side. Finally, the effect of antidumping measures to developing countries will be further studied.

International trade

International trade is the exchange of goods and services among different countries (Frieden and Lake 1995:100).

The fundamental difference between internal and international trade is that the latter includes the use of different currencies and is subject to additional regulations such as tariffs, quotas and foreign exchange controls, etc., »(Pearce, 1996).

International trade among nations allows companies to increase sales, to achieve significant economies of scale by reducing the unit cost and by increasing their profits, which if they remained in their own domestic markets, the chances and opportunities of being increased would be much less (Frieden and Lake 1995:110). At the international field, the competition among companies increases, resulting in new discoveries, cheaper economical and more useful products for consumers as companies compete for the global market share. However, domestic economies benefit as well since employment and income flowing to the domestic economy increase directly and indirectly (Suranovic, 1998-2004; Jepma & Rhoen, 1996).

So while many countries have substantial reasons to trade with other countries, it is also often true that they take measures to reduce incoming products and services. The main theoretical argument for free trade is based on the ability of greater consumption for each country relating to the status of self-sufficiency[3].

In reality, the trade policy of a country has never in history been determined, it is not determined and cannot be determined based strictly on economic criteria alone. The conditions that always characterized relations among different countries are not identical to the conditions of free trade (Grimwade, 2000).

In the dictum quoted above, extra characteristics must be added. The difference between domestic trade and international trade is more complex and blurred. International trade encloses below its conceptual and scientific umbrella, different or at least divergent political, economic and cultural circumstances among countries, different and conflicting interests in the international political and economic arena. This way all nations control, with several and different measures, their external trade aiming at specific benefits that will be studied in the present dissertation in detail. What is different are the intensity and extent of that control or interference among nations (Greenaway & Winters, 1994, Hoekman and Kostecki, 2001).

Global economic competition and the liberalization trend of international trade

Contrary to what is often argued, the world economy is not uniform along with the lines of national economy (a single legal, institutional and political framework for the operation of the economy, a single currency) but is characterized by "border" lines among national economies, which form part of this. These economic "frontier" lines can range from strict protectionist measures and "isolation" of the national economy from international (high tariffs and quotas, even banning imports), to indirect and covert forms of protection of domestic market and export subsidization, e.g. technical quality requirements or content of environmental regulation, which exclude products of some countries from the markets of the (usually developed) countries with strict standards and regulations (Li 2004:553-584). At the same level stands industrial policy (or the pricing and procurement policy of the government sector) that is practiced by certain countries (a typical example is Japan), which operates as a disguised form of protectionism of the domestic market from foreign markets, while exports are subsidized[4].

Admittedly, it is obvious and well known in the history of the world economy that a package of economic protectionism measures of a country causes corresponding content "countermeasures" from its trading partners (Lowenfeld 2002:42). This makes understandable the trend of trade liberalization among countries with minimal or even small differences in their economic development. How can the overall trend of the liberalization of international commerce and accession of more and more countries in the GATT agreements in the past and now the WTO can be explained? Does this trend eliminate the economic "border" lines among national economies? The answer may be given jointly to both questions.

Even if the state policies and measures of direct and indirect protectionism may be overseen, the dividing lines among the different national economies arise from the existence of different national currencies, the absence, i.e., of a single global currency. Thus, while nationally the prices of goods are "automatically" denominated in units of national currency at the international level the transformation of their national "money to name" into an international currency takes place i.e. the exchange ratio among the monetary units of different countries is intervened (Lal 2003:34).

The countries with the highest international labour productivity are initially able to place in the world market goods produced at prices lower than those of their less "productive» competitors in order not only to earn additional profits but also to expand their market share. The result for the more "productive" countries is the creation of expanding trade surplus, while at the same time the increase of trade deficits in countries with the lowest productivity worldwide continues. These trade balances, deficits or surpluses, respectively - are the most decisive factor that determines the long-term movement of the international exchange rate of a national currency. A continuous deterioration in the trade balance may not be short term offsetted by a corresponding improvement in the balance of funds[5]. Under the pressure of such trade deficits, the country with the relatively lower productivity is obliged to devalue its national currency while correspondingly the surpluses of the balance of trade of the country with the highest labour productivity set in motion a process of appreciation of its own national currency. Assuming that all other factors remain unchanged, the monetary mechanisms just described, alter the competition among different national economies in comparison always with the competition of businesses in the framework of national economy: in this case, the global market, the adjustment rate of the national currency functions protectively to the least developed (national) funds (Markusen et al.1995:230). International differences in productivity can then be copied to a much greater extent; the additional profits gained by the most developed national funds are eliminated.

Through the devaluation of the least developed country, the "high" prices of its national products convert in medium (and low) international market prices. Similarly, the "low" national prices of the more developed country (the country with relatively higher productivity) are converted again, through the appreciation of national currency, into average world prices (Markusen et al.1995:250). The variance of the exchange rate function is protection for the least developed economies. Exchange rates cling to levels, which ensure the sustainability of all countries participating in the international competition. While this does not concern all countries of the world (because these mechanisms are not sufficient to ensure competitiveness in countries with very low growth), it is a global economy within which very significant differences of growth and productivity rather than that within a national economy are reproduced. The least developed countries participate in the international trade without their position in the world market to be threatened by the more developed countries. To cite an example from the category of developed industrial countries, which they have over two thirds of world trade, it has been estimated that in 1950 the productivity in the U.S. was 3-10 times higher than in Western Europe or Japan. However, despite their dominance, and despite the liberalization of international trade after the Second World War (Moore 1985:212) which was based on the agreements of GATT, the U.S. not only did not displace their competitors from the world market, but they saw their share of imports in their domestic market, to extend continuously. This process was accelerated, of course, since the international economic competitors of the USA (mainly Japan and West Germany, etc.) were able to gradually cover the development gap that separated them from the U.S[6]. This modification of the conditions of economic competition in the international market explains why more and more countries accept the framework of the gradual reduction of protectionist measures that emerged after the war among developed countries and are eager to enter into agreements and organizations like the WTO. However, the (international economic) competition is always competition, and international organizations are less "temples of cooperation" and they are more "crystallized" power relations. At the same time, the interweaving of politics and economics is at the international level more intense than at the national.

The unstable economic hegemony of the U.S.

The transition from GATT to the WTO was marked by a series of arrangements that reflect on the one side the growing international economic power of the developed Western countries after the collapse of the so-called "real socialism" and on the other the leading U.S. role in the international scene (Moore and Zanardi 2009:469-495):

a) liberalization of "trade services" through the GATS (General Agreement on Trade in Services), covering one fifth of total world trade (one trillion U.S. dollars). With this arrangement, the financial services are treated as "goods". This way, the regulation of exchanges was expanded for the first time under the internal market of the Member States.

b) Protection of Intellectual Property Rights (IPR). The IPR ensures to a great extent the interests of (American, mostly) software companies and "entertainment".

c) Exclusion of commercial free trade zones of the developed countries (EU, NAFTA, APEC [Economic Cooperation Asia-Pacific]), from measures imposed on other WTO members.

d) the Organization assumes more responsibility for the control and imposition of sanctions on member countries that violate WTO rules. The WTO agreements will be incorporated into the national law of the states, while in cases of breaches of regulations, there will be trade sanctions by all WTO members. In these measures, many analysts saw an effort of the developed western countries (USA, EU, Japan) to maintain and widen the gap with developing countries and to prevent any possibility to establish common policy objectives. This view is correct. However, it should not be overlooked that the vast major share of the total volume of world trade is conducted among the developed countries. It is understood that the contradictions that arise from the competition and regarding the regulation of commercial relations among the developed financial centers (for example, example the controversy U.S. - EU on agricultural and livestock products) are not of minor importance and intensity than those between the developed and developing world. Eventually, an international organization like the WTO cannot remain unaffected by the contrast and is required to manage or suspend the changed balance of power in the global economy. So, WTO has become the body of the main contradiction that characterizes the "world system" The sheer economic power of the political ruler (the U.S.) is increasingly challenged by its competitors (EU, Japan). The international economic competition has been one of the key drivers that led the EU countries in the formulation of the "single economic space" and the adoption of the single European currency. Whether this process can lead to the emergence of a European hyper state, it is premature to say, and in each case the answer to this question will require a different analysis.

Trade Barriers

The resources that a country can use to influence its imports and exports and in general international trade, as shown in the literature and international experience, vary. The first and basic distinction that can be made is among tariffs, i.e. in tariff measures and non-tariff measures that restrict trade directly, especially imports (Krugman, 2000).

Tariffs

The tariff is a tax levied on those products which pass the limits of a state. Basically, however,it is a tax levied on imported products, and this is why each country tries to promote its exported products and not hinder them (Georgakopolous, 1998, Mikic, 1998). The tariff is a tax on the international price of an imported product and has the form of: (A) a lump sum tax (Specific-predetermined or special tariff) for example, $ 3.00 per oil barrel

(B) a proportional tax (Ad Valorem-ad valorem tariff), as it is the tax imposed by the European Union on imported bananas coming from America and which ranges from 15% to 20% for the first 2.5 million tonnes of bananas.

(C) it may also be possible to have a complex tariff that is imposed as a percentage and as a fixed amount per product (Pournarakis, 1990). For example, 10% of the value of televisions and X Euros per television.

(D) Finally, there are «discrimination taxes» (Discriminatory), where in this case, the taxes imposed by a particular country in which there is an imbalance in the balance of trade, or even for political reasons.

Tariffs are one of the best instruments for commercial control because they are less rigid and more transparent (Kennen, 1999, Jempa & Rhoen, 1996).

The main reason given for the imposition of tariffs is to protect domestic producers from competition. A tariff affects indirectly the quantity of imports and the price of products while at the same time increases the cost of imported products. The immediate effect of the imposition of tariffs favours domestic producers. The price of imported products increases since the supply remains stable and the imported product is more expensive (Sazanami et al., 1994). Any increase is usually passed on to consumers who either buy the more expensive imported product or buy the domestic product in a more expensive price than the one that would prevail under conditions of free trade.

Tariff on a single commodity with a stable global price.

A recent survey on trade among 102 countries showed that when the cost increases by 1% it leads to a reduction in the amount of trade by 3% (Hummels, 2001, Limao and Venables 2001).

It is scientifically proven that the imposition of tariffs reduces the efficiency of the economy, mainly because the products produced in other countries-possibly in a more efficient and effective way are prevented from entering the domestic market (Krugman and Obstfeld, 2000).

Non-Tariff Barriers

Over the past 50 years, our world is experiencing a gradual reduction of tariff barriers in the most developed countries. These efforts that were initiated by the industrialized nations produced significant results to the level of tariffs, which have been significantly declined (Hollensen, 2004).

However, alongside with this, other “protective mechanisms” were activated " - Non-tariff measures that do not infringe the letter of the law as stated characteristically by Pournarakis (1990) but they infringed the spirit of the law. Several times, their distinction is, due to their nature, blurred.

While the tariffs analysed, is a protectionist measure, direct controls according to Kerr & Perdikis (1995), are used more for troubleshooting the balance of payments. Below are the most important Non-Tariff Barriers.

Export Subsidies - Premiums

The subsidy is a government payment to a domestic producer. The subsidies can take many forms such as financial compensation, low interest loans, tax exemptions and state participation in domestic industries (Mikic, 1998).

With the subsidy and the reduction of production costs the government helps companies not only to confront competition but also to engage in international trade. The agricultural sector tends to receive more subsidies. In the beginning of 21st century in Japan, the average farmer received 21,000 and $ 19,000 in Europe, which meant 62% of the total income and 43% respectively[7].

As it will be seen below this help to businesses may lead to substantial profits (e.g. Boeing in America, where the U.S. State contributed by large funds and also the case of Japan with the state funding of the very promising industries producing LCD). The subsidies derive from money collected by the state through the taxation of citizens. There is a strong political and academic debate, whether the outcome is positive or negative about this type of state investment. The most negative fact, however, recorded for subsidies is that they lead to inefficiency and creation of excess supply. So in the agricultural sector, recent surveys indicate that world trade in this sector could be 50% higher and the world as a whole will benefit by $ 60 billion (ibid).

Restrictions On Imports – Exports // Import Quotas

A restriction on imports refers to the amount of products that can be imported in a country. It usually takes the form of certificates that a company should hold to import products. USA has such a restriction on the imports of cheese and only certain companies can import quantities of cheese to the USA. Many times this right is even assigned directly to governments rather than corporations (Pournarakis, 1990). Kenen (1999) argues that the imposition of quantitative restrictions fosters corruption because it prevents economic efficiency since it cannot be applied in a fair manner on the quantities and tends to favour those who have access to the “papers” (i.e. certificates), as he specifically mentions, which will give them the right to engage in trade.

Voluntary Export Restraints – VER

This form of restrictions refers to the limitation imposed by the exporting country at the request of the country importing the products. A tangible example was the restriction of imports into the U.S. of cars produced in the Japanese market (early 1981). The above practice has usually the consent of the producers, because there is a strong fear of tariff imposition and quantitative restrictions by the importing country, if they refuse it. With the imposition of voluntary export restrictions the price of imported products is increased, while consumers are turning to domestic substitute products. For example, the cost of voluntary export restrictions in USA from Japan is estimated to have cost to American consumers $ 1 billion dollars (Krugman & Obstfeld, 2000). The example of the American sugar industry is shocking. There was a voluntary reduction in export volumes that made American consumers pay a 40% more expensive price by 40% (Hufbauer & Elliot, 1993).

Local Content Requirements

Local content requirements refer to requirements imposed by a state in the production of products, namely in the percentage of materials used in the production of the product and where its production should take place. This measure applies in developing countries to be protected from foreign competition, particularly through the protection of job positions. A not so well known law in the U.S. territory concerns the preference that the American companies should have when they make agreements for product equipment. They should have 51% of materials and value of the equipment produced in the U.S. (Kennen, 1999).

Unofficial Barriers

Apart from the formal barriers that were studied above, a government may impose other measures that can reduce imports and boost exports. These concern mainly «administrative policies" and anti-dumping policies.

Administrative Policies

This barrier policy is based primarily on terms of bureaucracy that lead mainly to delays. It is a common assumption that Japan is a pioneer in such constraints. It is easily observed by everyone that the imposition of tariff and non-tariff measures in Japan is from the smaller ones (Gilpin, 2001). However, the "administrative-bureaucratic" obstacles are bigger. How a delay may affect the smooth running of trade becomes apparent soon after.

Researchers have estimated that the daily delay at the borders is equivalent to 0.5% additional tax with a lower value for agricultural products and higher for consumer goods (Hummels, 2001). However, even small changes in trade costs affect the evolution of trade and therefore, of economy. The increases in product prices affect not only importers and exporters, but they spread to many other countries through trade and substitution of products.

Embargoes

Another measure of economic policy which, however, occurs rarely and is one of the most aggressive actions of a country Hollensen (2004). The embargo is an international term used mainly for the economic exclusion of a country by other or others for reasons of national interest or national security. It is a peaceful and moderate measure of pressure and has been applied several times in modern history. An example is Greece and the embargo imposed by the Greek government to FYROM, in the beginning of 90’s

International Cartels

The establishment of an international body from countries that produce a specific product to maximize their profits is the "international cartel”. The less members the international cartel has the more effective it is and the more difficult to substitute the produced-exportable product the more profitable it is. A typical example is the famous OPEC. Finally, it should be mentioned, that although within a country such actions by domestic producers are prohibited at the international level they are not legally strictly restricted (Papazoglou, 2008).

[...]


[1] Greenaway, D.1996. Current Issues in International Trade.2nd ed. New York: St Martin’s Press, Inc.

[2] Kerr, W.A. and Perdikis, N. 1995. The economics of international business, London: Chapman & Hall.

[3] Gilpin, R.2001. Global Political Economy: understanding the international economic order. U.S.A.: Princeton University Press.

[4] Yarbrough, B.V. and Yarbrough, R.M.2000. The World Economy: Trade and Finance. 5th ed. Orlando: Harcourt College Publishers.

[5] Mikic,M. 1998.International Trade. London: Mac Millan texts in economics.

[6] Feenstra, R. 2004. Advanced International Trade: Theory and Evidence. Princeton: Princeton University Press.

[7] Neufeld, I.N.2001. Antidumping and countervailing procedures;use or abuse;implications for developing countries. New York, United Nations.

Excerpt out of 53 pages

Details

Title
Adverse Effect of Antidumping Laws on Developing Countries
Course
Economics
Author
Year
2010
Pages
53
Catalog Number
V346957
ISBN (eBook)
9783668377554
ISBN (Book)
9783668377561
File size
987 KB
Language
English
Tags
economics, dumping, antidumping, protectionism
Quote paper
Fotini Mastroianni (Author), 2010, Adverse Effect of Antidumping Laws on Developing Countries, Munich, GRIN Verlag, https://www.grin.com/document/346957

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