Antidumping And The Wto 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, constr …