Photo by <a href="">broterham</a> (<a href="">CC</a>).
Photo by broterham (CC).

Policy Innovations Digital Magazine (2006-2016): Briefings: The Fishy Business of Antidumping

Mar 12, 2008

Over the past decade antidumping (AD) cases have become a whale of a problem on the international trade scene.

According to the World Trade Organization (WTO), dumping occurs when "a company exports a product at a price lower than the price it normally charges on its own home market." The WTO late last month ruled that the United States was violating trade rules with its tax on shrimp imports from Thailand and India, damaging U.S. credibility as a free trader. The United States claimed that Thailand was selling at an unfairly low price.

Dumping may also be said to occur when the export price of a product is below the cost of production. Domestic industries often pressure their governments to charge antidumping duties on dumped goods; these duties should be equal to the "dumping margin"—the difference between the prices charged on the home market and the export market. The intent of antidumping is thus to restore fairness to international trade by protecting firms from predatory dumping, and by giving industries time to adjust to increased levels of competition.

Rich countries have taken frequent advantage of these broad definitions of dumping to impose antidumping duties. But as trade scholar Brian Hindley notes, developing countries are increasingly initiating antidumping cases, with India initiating 448 between 1995 and 2006, and China initiating 126 cases since 2000. With the growing number of antidumping cases—supposedly in the name of fairness—it is reasonable to ask how fair is the practice.

Antidumping policy enjoys widespread political support, especially in rich countries such as the United States and those in the European Union. The support for antidumping policies stems in large part from the idea that dumping is unfair. Yet, evidence suggests that antidumping policies are in themselves a source of unfairness, specifically in their restriction of competition from more competitive industries abroad.

The WTO allows governments to take antidumping actions if the governments can show that dumping is occurring and that this is causing or threatening to cause injury to the domestic industry.

The United States and the European Union have laws allowing governments to investigate charges of dumping and bring antidumping actions. In the United States, industries can petition the International Trade Commission (ITC) and the Commerce Department to take antidumping actions to counteract dumped imports. If the Commerce Department finds evidence of dumping and the ITC finds that the industry is "materially injured or threatened with material injury," antidumping duties can be imposed. The European Union has a similar process.

From a broad economic perspective, the only detrimental form of dumping is predatory dumping which occurs when a foreign company temporarily lowers prices to establish monopoly power in the export market. Research however suggests that predatory dumping is rare and even more rarely anticompetitive.

World Bank official Bernard Hoekman and scholar Michel Kostecki argue that "90 percent of all AD investigations would never have been launched if a competition standard—potential threat of injury to competition, as opposed to injury to competitors—had been used as a criterion." In fact the resulting competition from abroad may stem a firm's ability to establish monopoly. The United States, the European Union, and the WTO, however, do not differentiate between predatory dumping and other forms of dumping such as price discrimination when a firm sells a product abroad at a lower price than at home.

The costs of antidumping fall on two groups in rich countries—the consumers and the producers that use imported inputs. Both suffer from higher prices and often the exports of developing country industries are hurt because of the loss of market access.

There are four problems with current antidumping policies can be identified. First there is no need to show that the motivation for dumping was predation; all that must be shown is that a foreign firm is selling below cost or selling at prices abroad that are lower than in the home market. The second problem is that investigations do not give enough weight to the economy-wide effects of antidumping actions.

The third problem is that antidumping laws in the United States and the European Union unfairly favor the interests of domestic producers over consumers and users of imported inputs. The final problem stems from the discretion of investigating authorities in determining dumping margins. Investigating authorities can increase the size of antidumping duties by counting negative dumping margins as zero—known as zeroing—which also occurred in the Thai shrimp case.

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